Shedding light on Shady Grove: further reflections on the Erie doctrine from a conflicts perspective.

Author:Bauer, Joseph P.
 
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As is well known, the "Erie (1) doctrine" broadly involves questions of vertical choice of law: what law should be applied in a federal court when the underlying claim arises under state law? (2) In an article that appeared in this journal twelve years ago, (3) I argued that many of the goals embodied in that doctrine would be advanced if learning from the field of horizontal conflicts of law--determining which of the conflicting rules of two or more states or countries should govern--were applied to Erie analysis. (4)

In this Article, I propose to reexamine some of those issues in light of intervening case law, academic criticism, and, in particular, the Supreme Court's recently decided case, Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co. (5) For the most part, the suggestions in that 1999 article are consistent with the dissent's conclusions in Shady Grove. Interestingly, however, some other aspects of conflicts-of-law doctrine, and in particular case law surrounding the imperatives and limitations imposed on state courts by the Due Process and Full Faith and Credit Clauses, would have provided useful insights for the plurality and concurring decisions.

In Part I of this Article, I begin with a brief review of the basic methodology for resolving "Erie cases," and of some of the ways that horizontal choice-of-law jurisprudence might be imported into the Erie realm. In Part II, I then offer a brief summary of the facts, and Justice Scalia's plurality, (6) Justice Stevens's concurring, and Justice Ginsburg's dissenting (7) opinions in Shady Grove. In Part III, I analyze and criticize those opinions. In Part IV, I conclude with some observations about issues that remain unresolved after Shady Grove.

I.

It is familiar learning that when a federal court serves as the forum for the adjudication of claims arising under state law, it may be required to apply state "rules of decision" to resolve many of the legal issues in dispute. At a minimum, this requirement is imposed by section 34 of the Judiciary Act of 1789 (8)--the so-called Rules of Decision Act. (9) And, without identifying specific provisions, Erie itself suggested that appropriate deference to state law was constitutionally mandated. (10)

But when? This question has vexed courts and commentators for the nearly three-quarters of a century since the Erie decision. So, let me first offer an abbreviated version of Erie for Dummies.

A.

The starting point is the identification of the legal issue in question. For example, what is the duty of care owed by a railroad to someone walking parallel to its right of way? (11) What steps suffice to satisfy the state statute of limitations' requirements for "commencing" an action? (12) What should be the standard of review applied by a trial court of a jury verdict, and by an appellate court of the trial court's ruling thereon? (13) May a particular claim be asserted as a class action? (14)

At this stage, the court must identify the nature and scope of the state and federal "rules" (15) that would deal with that question. Do both of those rules in fact address and cover that question? Do they truly "conflict," or might they coexist, in part perhaps because the federal rule should be given a less expansive reading? If they can be harmonized--if they do not in fact clash--then the Erie problem largely disappears. If the state law is the only "rule" that is on point with respect to that issue, (16) then the federal court will of course apply it.

In my earlier article, I drew on horizontal choice-of-law jurisprudence to advocate for more robust attempts to give the federal rule a more limited reach, as a means of reducing or solving Erie problems. This approach would be consistent both with some of the primary goals of a conflicts regime, including enhanced comity, uniformity of outcome, and a reduction of "forum shopping," and with a fundamental underpinning of Erie--respect for the law-making and law-enforcement role of the states, based on the federal nature of the Republic. (17)

Unfortunately, the Supreme Court has spoken with at least two voices with respect to its willingness to give a more restrained reading to federal statutes and the Federal Rules of Civil Procedure (FRCP). (18) On the one hand, the Court has on multiple occasions given the Federal Rule a more limited reach, thus avoiding a clash with state law. (10) Indeed, the Court has noted that in assessing their reach, "[f]ederal courts have interpreted the Federal Rules with ... sensitivity to important state interests and regulatory policies." (20) However, the Court has also stated that the Rules should be given their "plain meaning," even if that will result in a "direct collision." (21)

As discussed more fully below, (22) in my view, a principal objection to the plurality's opinion in Shady Grove is its payment of lip-service to the merits of this more restrained approach, but then the rejection in fact of that alternative.

B.

The second step of Erie analysis takes place after the court determines that both the state and federal rules govern the disputed legal issue, but in different ways, i.e., that they "clash" and cannot be harmonized. The court then looks to the source of the federal rule. (23) On a descending hierarchy of primacy, these could be the U.S. Constitution, federal statutes, (24) one of the Federal Rules promulgated pursuant to the Rules Enabling Act (REA), (25) or federal judge-made law.

  1. Because the U.S. Constitution provides that it is the "supreme Law of the Land," (26) it will always prevail in any clash between it and a conflicting state law. To date, only two Erie cases at the Supreme Court level have raised this potential conflict. (27) However, in both cases, the Court found that the constitutional provision at issue--the Seventh Amendment--only "influenced" the result, and did not reach so far to create an actual clash. (28) Therefore, the Court proceeded to employ alternate methodologies to resolve the Erie issue.

  2. and 3. Clashes between a state rule, and either a federal procedural statute or one of the Federal Rules, are dealt with in similar fashion, although the former entails only a single step, while the analysis for the latter comprises two steps. In both cases, after that analysis, the federal standard will be applied unless the federal rule was not "validly" adopted. As a historical matter, once the Supreme Court has concluded that the statute or Rule is on point and that it governs the issue in dispute, it has never sustained a challenge seeking to invoke Erie principles and has rejected contentions that, as applied, the federal statute or a Federal Rule was "invalid"--including in Shady Grove.

    The resolution of a clash between a state rule and a federal procedural statute is relatively straight forward. In Stewart Organization, Inc. v. Ricoh Corp., (29) the Court held that "a district court sitting in diversity must apply a federal statute that controls the issue before the court and that represents a valid exercise of Congress's constitutional powers." (30) Once these two determinations have been made, the federal court no longer has occasion to undertake any Erie-based analysis--even if arguably the application of federal law would be inconsistent with some of policies underlying the Erie doctrine. (31)

    Because of limitations on the statutory authority for the promulgation of the Federal Rules, the resolution of a clash between one of those Rules and a state rule is more involved. In 1934, Congress passed the Rules Enabling Act (REA), (32) authorizing the Supreme Court to prescribe "general rules of practice and procedure and rules of evidence for cases in the United States district courts ... and courts of appeals." (33) As a counterpart to the emphasized language, the Act also provided that "[s]uch rules shall not abridge, enlarge or modify any substantive right." (34)

    Thus, after a court undertaking an Erie analysis has determined that there indeed is a clash between a state rule and one of the Federal Rules, it will use the standards of the PEA to determine if the Rule is "valid." Once again, as with a federal statute, the federal court must apply a "valid" Rule in the face of the conflicting state rule. (35)

    The Supreme Court has undertaken analyses of whether a particular Rule was "valid" in a host of cases--from Sibbach v. Wilson (36) in 1941, to Shady Grove earlier this year. (37) The "test" seeks to address the REA's contrast between valid "rules of ... procedure" (38) and prohibited rules which would "abridge, enlarge or modify any substantive right." (39) However, even after seventy-plus years, the Court has been unable to come up with definitions of "procedural" and "substantive" which predictably resolve that distinction. Rather, in Shady Grove, the plurality fell back on the "test" first stated in Sibbach: "We have long held ... that the Rule must 'really regulat[e] procedure--the judicial process for enforcing rights and duties recognized by substantive law and for justly administering remedy and redress for disregard or infraction of them.'" (40)

    It is obvious that this proffered "test" is vague and imprecise. In Part III below, I will discuss why the heavy reliance on it by the Shady Grove plurality was a thoroughly inadequate basis for resolving the Erie issue.

  3. The appropriate analysis for resolving clashes between state law and federal judge-made law is considerably less well-defined than with the prior three clashes. Over the years, the Court has identified four different, but overlapping, approaches. Because Shady Grove nominally involved a clash involving one of the Federal Rules, I will not discuss these four approaches in detail; (41) instead, I will confine myself to identifying those aspects of these approaches which are relevant to Shady Grove and to the invocation of conflicts-of-law jurisprudence to resolving Erie disputes.

    The first approach is the...

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