The twin aims of Erie.

• Author: Green, Michael Steven
• Position: Introduction through II. Justifying the Twin Aims, p. 1865-1904

We all remember the twin aims of the Erie rule from first-year civil procedure. A federal court sitting in diversity must use forum state law if it is necessary to avoid 'forum shopping" and the "inequitable administration of the laws." This Article offers a reading of the twin aims and a systematic analysis of their proper role in federal and state court. I argue that the twin aims apply in diversity cases not because they protect state interests, but because they serve the federal purposes standing behind the diversity statute. So understood, they are about separation of powers, not federalism. Through the twin aims, state law is incorporated into federal procedural common law in order to serve federal interests.

This reading does not merely have important consequences for diversity cases. It also has an impact on the role of the twin aims outside diversity. If the twin aims have their source in the purposes standing behind the congressional grant of jurisdiction, rather than respect for state interests, the fact that a federal court entertains a state law action is neither a necessary nor a sufficient reason for the twin aims to apply. The twin aims might apply to federal courts when entertaining federal causes of action. Conversely, they might not apply to a federal court when entertaining state law actions under jurisdictional statutes other than diversity.

I therefore examine four jurisdictional scenarios in order to assess the role of the twin aims in each: a federal court entertaining a federal cause of action, a state court entertaining a federal cause of action (sometimes called reverse-Erie), and a federal court entertaining a state law action under supplemental jurisdiction and under bankruptcy. In the course of my argument, I suggest a resolution to the current circuit split about whether a federal court sitting in bankruptcy should use forum state choice-of-law rules. I also argue that the Supreme Court has wrongly assumed that the twin aims apply in a reverse-Erie context. As a result, it has improperly limited state courts' powers when entertaining federal civil rights actions--most recently in Haywood v. Drown, 556 U.S. 729 (2009).

This Article offers an original justification of the twin aims in diversity cases, and the first comprehensive explanation of their role in a variety of other jurisdictional contexts.

INTRODUCTION

In Erie Railroad Co. v. Tompkins, (1) Harry Tompkins, a Pennsylvania citizen, sued the Erie Railroad Company, a New York citizen, in federal court in New York concerning an accident in Pennsylvania, in which he was hit by something protruding from a passing train. (2) Because Tompkins was trespassing at the time, an important issue was Erie's duty of care. (3) Under Swift v. Tyson, (4) the federal court could have come to its own conclusion on the matter. (5) But the Supreme Court held that it had to answer the question by reference to Pennsylvania common law, as decided by the Pennsylvania Supreme Court. (6)

That much we learned in first-year civil procedure. But assume that Tompkins had waited two and a half years before bringing suit, and the issue had not been Erie's duty of care, but whether Tompkins's action was time-barred. A New York state court would apply its two-year statute of limitations and dismiss the action. Tompkins claims, however, that the federal court should apply a more flexible federal common law rule that looks to whether his delay was unreasonable. How should the court rule?

We learned that one too. Under Guaranty Trust Co. v. York, (7) the federal court must apply New York's statute of limitations. (8) Since the matter is not governed by a federal statute or a Federal Rule of Civil Procedure, the court faces what Chief Justice Warren in Hanna v. Plume (9) called a "typical, relatively unguided Erie choice." (10) That means that the "twin aims of the Erie rule" govern. (11) New York's statute of limitations must be used to avoid "forum shopping" and the "inequitable administration of the laws." (12)

But that generates a puzzle. According to Erie, federal courts must defer to state supreme courts concerning the content and scope of state law. That means that New York's statute of limitations applies to Tompkins's action only if the New York Court of Appeals says it does. And the New York Court of Appeals might not care if its statute of limitations is used by federal courts, even if the difference between federal and New York procedure leads to forum shopping and litigant inequity. Guaranty Trust Co. v. York looks more like Swift than Erie, for in his opinion in York, Justice Frankfurter made no attempt to discern the likely decision of the forum state's supreme court. Indeed, York looks even more Swiftian than Swift, which never suggested that federal courts could ignore state court interpretations of state statutes. (13)

This puzzle is not restricted to statutes of limitations. Relying on the twin aims, federal courts sitting in diversity have applied forum state law to a wide variety of issues, without considering the likely decision of the forum state's supreme court. Some examples are: the tolling of statutes of limitations; (14) preconditions for bringing suit (such as posting a bond, (15) filing a certificate of merit, (16) and submitting the dispute to arbitration (17) or mediation (18)); the availability of attorney's fees if an offer of settlement is refused; (19) hearings for a settlement involving a minor; (20) and methods of calculating attorney's fees, (21) exchange rates, (22) and prejudgment interest. (23) All of these decisions, made in Erie's name, in fact look threatened by Erie.

Initially, some voices on the Court expressed concern that it was violating its own command to respect state court decisions concerning the scope of state law. For example, in Woods v. Interstate Realty Co., (24) the issue was whether a federal court sitting in diversity in Mississippi should use a Mississippi statute requiring non-Mississippi corporations to register to do business in Mississippi before bringing a lawsuit "in any of the courts of this state." (25) The Fifth Circuit, after reviewing Mississippi state court decisions, concluded that the phrase "courts of this state" referred only to Mississippi state courts, not federal courts. (26) But the Supreme Court held that the statute applied in federal court anyway, prompting Justice Jackson, in his dissent, to observe that "we seem to be doing the very thing we profess to avoid; that is, giving the state law a different meaning in federal court than the state courts have given it." (27)

The twin aims are puzzling in other respects. We know that a federal court in New York cannot create a common law limitations period for Tompkins's action because there would be forum shopping and the inequitable administration of the laws. But a state court in New Jersey or California is free to apply its own limitations period to Tompkins's action. (28) Why isn't the resulting forum shopping between state courts impermissible? Why aren't state courts inequitably administering the laws? Furthermore, as the Supreme Court has made clear, Congress could pass a statute of limitations that applied to Tompkins's action in federal court, even if forum shopping and litigant inequity might result. (29) Why are federal courts bound by the twin aims, but not Congress?

My goal in this Article is to offer a comprehensive explanation of the twin aims that answers these puzzles. The heart of my argument is that the twin aims are unrelated to the concerns about federalism and state interests that motivated Erie. The twin aims are instead justified by the federal interests standing behind the statute giving the federal court jurisdiction. Although Warren spoke in Hanna of the "twin aims of the Erie rule," the twin aims are not about Erie.

By dissociating the twin aims from Erie and tying them to the source of jurisdiction, I can explain why the federal courts in York and Woods had to use the forum state's legal rule, whether or not the forum state's supreme court wanted it to be used. The question was not the applicability of state law, but whether the forum state's rule should be incorporated into federal common law to serve the federal purposes standing behind the diversity statute. (30)

The incorporation of state law into federal common law is not unusual. For example, when a federal statute lacks a limitations period, federal courts will often borrow a limitations period from the most analogous statute of limitations in the forum state. (31) They do this largely because of the feeling that it is awkward, and strangely unjudicial, (32) for a federal court to make up a limitations period out of whole cloth. The Supreme Court has described the time limit applied in such cases as federal, and it is easy to see why. (33) The forum state's supreme court would not hold that its statute of limitations extends to federal courts. The time limit is instead part of a federal common law rule. It is for this reason that federal courts freely ignore state court interpretations of the borrowed statute of limitations, without anyone thinking that Erie is violated. (34)

The same thing happens under the twin aims, except incorporation into federal common law extends far beyond limitations periods to countless other aspects of state procedural law. Furthermore, the motivations for incorporation are not primarily worries about pulling rules out of thin air, but federal jurisdictional policies. The twin aims are the means by which federal courts create federal procedural common law. (35)

This reading of the twin aims received some support about a decade ago in Justice Scalia's opinion in Semtek International Inc. v. Lockheed Martin Corp. (36) Semtek concerned the claim-preclusive effect of a dismissal on statute of limitations grounds by a federal court sitting in diversity in California. (37) Scalia insisted that the preclusive...