HORIZONTAL CHOICE OF LAW IN FEDERAL COURT.

• Author: Clopton, Zachary D.

INTRODUCTION

Perhaps the most watched piece of complex litigation in American courts involves the lawsuits arising from the national opioid epidemic. (7) Municipal, state, and other plaintiffs have filed tens of thousands of lawsuits against the manufacturers and distributors of opiates, frequently arising under state law. Countless state law claims have ended up in federal court, (8) variously based on diversity of citizenship jurisdiction, supplemental jurisdiction, federal question jurisdiction, Class Action Fairness Act (CAFA) jurisdiction, federal officer removal, and more. (9) There was even a case filed by the State of Arizona under the original jurisdiction of the Supreme Court of the United States. (10) The district court cases were consolidated in a federal multidistrict litigation (MDL) in the Northern District of Ohio in front of Judge Dan Polster. (11) Then, in 2019, Purdue Pharma filed for bankruptcy in New York and sought a stay of ongoing litigation, potentially bringing pending claims against it into the bankruptcy proceeding. (12)

Why, you might wonder, did the prior paragraph make so much of the various jurisdictional hooks in the opioid litigation? A claim is a claim is a claim, right?

Not so fast. Anyone who has taken first year Civil Procedure knows (or should know (13)) that federal courts may apply state law--the Erie doctrine (14)--and that, when sitting in diversity, the state law to be applied is the law that the forum state's highest court would apply--the Klaxon rule. (15) But what we may not tell our Civil Procedure students is that the reach of Klaxon beyond diversity is not so clear. Federal courts have departed from Klaxon when state law arises in bankruptcy, admiralty, and Foreign Sovereign Immunities Act cases, and in cases within the original jurisdiction of the Supreme Court. (16) Scholars have further called for federal courts to ignore Klaxon in CAFA and MDL cases. (17) If these scholars had their way, a state law claim in the opioid litigation might have been governed by different state law when filed in state court, when removed to federal court under CAFA, and when consolidated in a different court as an MDL. And even without the scholarly intervention, a defendant's decision to file for bankruptcy--for example, a so-called mass tort bankruptcy (18)--might have the effect of changing the state substantive law to be applied to pending claims.

This Article argues that these results are at variance with the policies of the Erie doctrine; they are inconsistent with the Rules of Decision Act; and they draw no support from the federal jurisdictional statutes. A better approach is to follow Klaxon whenever state law applies in federal court--and perhaps in situations where state law is otherwise incorporated into federal law.

Support for this approach comes from both the jurisdictional and institutional policies of Erie. The jurisdictional policies of Erie are often characterized as the "twin aims" of reducing forum shopping and avoiding the inequitable administration of the laws. These laudable goals are implicated when state law applies in federal court regardless of the basis of federal jurisdiction. Indeed, if we take seriously Justice Brandeis's concern with the social context of jurisdictional manipulation, (19) applying different law to CAFA, MDL, and bankruptcy poses particular problems in light of the parties to whom those bases might be available. So although Erie cases occasionally talk about the "accident of diversity," the policies of Erie, if not construed in a "crabbed or wooden fashion," (20) sweep more broadly.

The institutional policies of Erie also support extending Klaxon to these other cases. The Erie doctrine embodies two significant institutional policies: the protection of state interests and the desire to constrain federal judicial lawmaking. Extending Klaxon to any issue arising under state law furthers these twin institutional aims. Klaxon acknowledged that state interests are expressed not only in substantive law but also in choice of law. Klaxon also reflected the Supreme Court's concern that federal judges could circumvent Erie by smuggling federal lawmaking through the choice-of-law backdoor. Erie's institutional goals do not depend in any way on the basis of federal jurisdiction, and none of the federal jurisdictional statutes suggest any congressional intent to alter the choice of state law in federal court. Indeed, to the extent Congress expressed any opinion on choice of law, it would be in the Rules of Decision Act, which calls for federal courts to apply state law without any mention of the jurisdictional basis.

Importantly, the inconsistent choice-of-law treatment identified in this Article sometimes operates between state and federal courts, and sometimes between bases of federal jurisdiction. As a result, we cannot limit our gaze to federal-state forum shopping, but we also must consider shopping among bases of jurisdiction. Some parties, for example, might be able to choose whether claims are litigated as diversity cases, CAFA cases, MDLs, or in bankruptcy.

This ability to "jurisdiction shop" supports having the same horizontal choice-of-law rule independent of the basis of federal jurisdiction. Because Klaxon is not going anywhere, (21) it should extend to all bases of federal jurisdiction when state law applies. This conclusion suggests two versions of this Article's claim. The strong version is that federal courts should follow Klaxon when choosing among states' laws, period. The weak version is that, conditional on Klaxon being the rule for diversity cases (and many other types of cases), it also should be the rule for all other bases of federal jurisdiction, as a consistent choice-of-law approach is preferred. (22) So even for those who dislike Klaxon, this Article suggests that it would be a mistake for that rule to govern some but not all federal cases.

Nothing in this Article, by the way, depends on some quantitative accounting of the frequency with which parties shop for different choice-of-law rules. Indeed, such an accounting is impossible for CAFA and MDL where courts have not (yet?) departed from Klaxon. But it must be true that arties care about the law to be chosen--it is what determines whether they will be hanged in Professor Silberman's famous quip. (23) And however frequently parties shop for choice of law, the ability to shop can result in unequal treatment between those with access to particular bases of jurisdiction and those without such access, and it can intrude on state interest and empower federal judges without cause.

The balance of this Article proceeds as follows. (24) Part I briefly reviews the Klaxon decision and its critics, before exploring in more detail the areas in which federal courts depart from Klaxon or in which scholars have claimed that they should. Part II argues that the Klaxon rule should be extended to all cases where state law is applied in federal court. It first shows how the concerns with jurisdictional manipulation that motivated Erie are not limited to diversity cases, and that today's Black & White Taxicab (25) could involve the manipulation of jurisdiction via bankruptcy, CAFA, or MDL. This Part then details how the jurisdictional and institutional policies of Erie, supported by the Rules of Decision Act and the federal jurisdictional statutes, point to the use of Klaxon beyond diversity. Part III then proposes tentative extensions of these arguments: courts should follow Klaxon when federal common law or a federal statute looks to state law, and federal preclusion law should adopt state law for judgments arising under state law regardless of the basis of federal jurisdiction. (26) In short, Klaxon all the way down. (27)

1. KLAXON AND ITS DISCONTENTS

   1. Klaxon

      It always starts with Erie. (28) When the Erie doctrine calls for the application of state law, (29) it raises a question of horizontal choice of law--an issue, unfortunately for Harry Tompkins, to which the Erie Court gave little attention. (30)

      Three years after Erie, the Supreme Court took up horizontal choice of law in Klaxon v. Stentor Electric Manufacturing Co. (31) Klaxon was a breach-of-contract case, filed in the District of Delaware. The district court applied New York contract law to the claim. What proved a more vexing question was the law governing prejudgment interest. The district court and court of appeals applied New York law, seemingly following a federal choice-of-law rule.

      The Supreme Court unanimously reversed, holding that the choice-of-law question should be answered by forum law (here Delaware law). (32) As the Court observed, "Subject only to review by this Court on any federal question that may arise, Delaware is free to determine whether a given matter is to be governed by the law of the forum or some other law." (33) More generally, in cases in which it applies, the Klaxon rule calls for federal courts to follow the horizontal choice of law of the forum state, without exception. (34)

      At least three reasons support the Klaxon approach. First, a fundamental policy of Erie is reducing the incentives for intrastate forum shopping, (35) particularly with reference to matters of substantive law, though it does not track a "substance-procedure" line. (36) As Ed Purcell teaches, the need for intrastate uniformity to counter jurisdictional manipulation by corporate defendants motivated Erie in the first place. (37) Soon after Erie, it became apparent that choice of law in federal court could be an avenue to undercut this policy goal, (38) as choice of law could lead to different law being applied in state and federal courts. (39) Klaxon could be understood, therefore, as a patch on a hole in the Erie doctrine through which intrastate disuniformity could have crept. (40)

      Second, the Erie line embodies a notion of federalism that is attentive to state substantive policies. (41) Choice-of-law...