The Real Risk of Forum Shopping: a Dissent from Shady Grove

• Publication year: 2022

44 Creighton L. Rev. 29. THE REAL RISK OF FORUM SHOPPING: A DISSENT FROM SHADY GROVE

THE REAL RISK OF FORUM SHOPPING: A DISSENT FROM SHADY GROVE

PATRICK J. BORCHER(fn*)

Justice Borchers, dissenting.

Because I would apply New York's C.P.L.R. section 901(b) in this case, I dissent from the Court's judgment.

I.

Most of this Court's so-called "Erie"(fn1) jurisprudence should be reconsidered and abandoned. Particularly pernicious is the derivative "Klaxon"(fn2) doctrine which forces federal courts sitting in diversity to follow the choice-of-law methodology of their state court counterparts.

When the landmark decision of Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938) was handed down, the conflicts landscape was considerably less confused. The evil against which Erie was directed was "vertical" forum shopping, that is, shopping between state and federal court. In that case, the plaintiff Harry Tompkins was injured in Pennsylvania by the negligence of the defendant railroad as he walked across the railroad's land. Pennsylvania state law treated him as a trespasser on the railroad's property because the footpath that he was following was "longitudinal," that is, parallel to the tracks. The general common law rule - followed by most state courts and federal diversity courts and thus often incorrectly referred to as the "federal rule"(fn3) - treated him as a licensee because the path was well marked. For Tompkins, the difference was critical. If he were a trespasser he would have to show that the railroad's conduct was wilful and wanton, but if he were a licensee simple negligence would allow him to win. Under the negligence standard followed by the trial court he won a verdict of $30,000, a large sum for the day. Erie, 304 U.S. at 70. Under the wilful and wanton standard he could not prevail.(fn4)

Tompkins wisely chose to file the case in a federal district court sitting in diversity, which followed the general common law rule and ignored the Pennsylvania state rule. The federal court he chose was in New York. This Court ruled that federal courts sitting in diversity should no longer follow the general rule, but should defer to state law. Note, however, that the state law to which the Erie Court deferred was Pennsylvania's, not New York's. Even though the diversity court was situated in New York, the place of the injury was Pennsylvania. In 1938, when Erie was decided, so well ingrained was the lex loci delicti - or place of the injury - rule that the Court did not even pause in Erie to discuss the matter of which state law to apply. All assumed that if state law were to apply, it would be Pennsylvania's state law.

The philosophical and historical reasons for Erie's shift to applying state law in diversity cases have been thoroughly examined elsewhere and need not be restated here.(fn5) But by the time we handed down the important post-Erie decision of Hanna v. Plumer, 380 U.S. 460 (1965) our reasons had become purely practical. Erie, we said, was guided by "twin aims": "discouragement of [vertical] forum-shopping and avoidance of inequitable administration of the laws." Hanna, 380 U.S. at 468. In other words, if the differences between applying state law and a judge-made rule applicable in diversity cases were large enough that it would cause a rational litigant to head to federal court to avoid the state rule, then the state rule must govern. The Erie case itself was a fine illustration of this. A rational litigant in Tompkins's shoes would have done everything possible to avoid the Pennsylvania rule.

To this point, Erie makes a certain amount of sense because forum shopping undermines confidence in the rule of law. Gamesmanship, not justice, is the prevalent consideration if litigants can control the results of cases by choosing between courthouses as little as a block apart. Unfortunately, however, the world is not as simple as when we decided Erie, or even Hanna.

At the time Erie was decided all states applied a fairly simple, territorial set of conflicts rules for determining horizontal (state-to-state) choice-of-law issues. Tort conflicts, as mentioned above, were decided by the law of the place of the injury. See, e.g., Alabama Great Southern Railroad Co. v. Carroll, 11 So. 803 (Ala. 1892); Restatement (First) Conflict of Laws § 378 (1934). Conflicts as to contractual validity were determined by the lex loci contractus, or the law of the place of the making of the contract. See, e.g., Milliken v. Pratt, 125 Mass. 374 (1878); Restatement (First) Conflict of Laws § 332 (1934). Conflicts in conveyances of real property were determined by law of the situs of the real property. See, e.g., Restatement (First) Conflict of Laws § 221 (1934). These and scads of other territorial rules governed. This system was enshrined in 1934 in the American Law institute's First Restatement of Conflicts. state courts did vary in some minor details of how to apply this territorial system, and in 1941 this Court ruled, in Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487 (1941), that diversity courts must follow their home state's conflict-of-laws approach rather than independently deriving their own.(fn6)

one of the virtues of the uniform and territorial system of conflicts was that it diminished the incentive for horizontal or interstate forum shopping. In Tompkins's case, Pennsylvania state law would apply regardless of the state court in which the case was filed. All of this began to unravel in the 1960's. influential academics such as Brainerd Currie, see Brainerd Currie, Selected Essays on the Conflict of Laws (1963), and Robert Leflar, see Robert A. Leflar, Choice-Influencing Considerations in Conflict of Laws, 41 N.Y.U. L. Rev. 367 (1966), argued that the strictly territorial approach ignored state policies and interests and often led to unjust results. in place of the territorial system they argued for multi-factor tests that took account of state interests and the just result in the case. Their work heavily influenced the American Law Institute's Second Restatement of Conflicts, which was completed in 1969 and promulgated in 1971.

The first major judicial break from the territorial system was the decision of New York's high court in Babcock v. Jackson, 191 N.E.2d 279 (N.Y. 1963). In Babcock, the plaintiff and defendant were both New Yorkers who set out on a day-long car trip that was to begin and end in New York but took them into the Canadian province of ontario. The defendant's negligent driving caused a one-car accident in ontario that injured the plaintiff. ontario had a guest statute that completely barred the plaintiff from recovering against the defendant. New York had no such rule and thus would have allowed recovery on a showing of ordinary negligence. Under the lex loci delicti rule, ontario's guest statute would have applied. The New York court, however, citing to the academic critics of the territorial system and a tentative draft of the Second Restatement, held that New York law ought to apply. Babcock, 191 N.E.2d at 283 n.10, 284. The court reasoned that the New York residence of all of the parties, which gave New York a strong "interest" in the dispute (seeid. at 284), as well as the "unique" nature of the ontario statute (seeid. at 285), counseled application of New York law.

While the Babcock case was rightly celebrated,(fn7) it ushered in a new era of conflicts theories that have a strong tendency to apply forum law. Indeed, statistical analysis has shown that all of the modern conflicts theories are much more likely to result in the application of forum law than the First Restatement's territorial system. See Patrick J. Borchers, The Choice-of-Law Revolution: An Empirical Study, 49 Wash. and Lee L. Rev. 357, 377 (1992).

The result has been that the Erie-and-Klaxon doctrine's suppression of vertical forum shopping encourages the horizontal variety. By forcing federal courts to imitate the forum-favoring conflicts methodologies of their state court counterparts, parties use diversity courts and the liberal venue transfer...