Transfer and choice of federal law: the appellate model.

• Date: 01 February 1995
• Author: Ragazzo, Robert A.

Choice of law questions are among the most complicated in the American procedural system. In cases in which state law supplies the rule of decision, the laws of fifty sovereigns are potentially applicable to every dispute. State courts employ choice of law rules to determine which state's law governs a particular controversy.(1) Federal district courts exercising diversity jurisdiction employ the same choice of law rules as the courts of the state in which they are located.(2)

The choice of law problem is complicated by transfers of cases from one district court to another within the federal system.(3) In Van Dusen v. Barrack,(4) the United States Supreme Court held that after the transfer of a diversity case on the defendant's motion from a court that had the power to entertain the action, the transferee court should apply the same law that the transferor court would have applied.(5) This article considers whether and to what extent the Van Dusen rule should apply to transferred cases containing federal issues.

For illustrative purposes, assume that a plaintiff brings an action pursuant to section 14(a) of the Securities Exchange Act of 1934,(6) and Rule 14a-9 promulgated thereunder,(7) and alleges that the defendant negligently committed fraud in connection with a proxy solicitation. The plaintiff files a lawsuit in the United States District Court for the Southern District of New York. The plaintiff chooses this court because it lies within the Second Circuit, which permits negligence actions under section 14(a).(8) In light of the broad jurisdictional and venue rules that apply to securities fraud actions, the Southern District of New York is a proper forum.(9) The court then transfers the case to the United States District Court for the Northern District of Ohio, which lies within the Sixth Circuit. The Sixth Circuit has held that section 14(a) requires proof of scienter.(10) Should the Northern District of Ohio apply the law of the Second or the Sixth Circuit? The plaintiff's ability to proceed with the case depends on the answer to this question.

Among the early cases, two lines of authority developed. Prior to Van Dusen, federal courts considered whether to transfer cases containing federal issues to circuits that interpreted federal law less favorably from the plaintiff's perspective. These courts generally assumed that transferee federal law would apply and held that an unfavorable change of law from the plaintiff's perspective did not prevent a transfer.(11) After Van Dusen, federal courts continued to take the view that transferee federal law applies after a permanent transfer pursuant to 28 U.S.C. [sections] 1404(a).(12)

Four years after Van Dusen, Congress passed the Multidistrict Litigation Act (MDL Act).(13) The MDL Act allowed the Judicial Panel on Multidistrict Litigation (JPML) to consolidate cases for pretrial proceedings.(14) The MDL Act contemplated that transferred cases would be remanded to their original for a after the completion of pretrial proceedings.(15) MDL transferee courts, relying on Van Dusen with little analysis, applied transferor law on federal issues. These courts neglected to consider whether the Van Dusen rule should apply to federal issues and what difference, if any, the MDL posture of the case made.(16)

Thus, in the early 1980s it was well established that transferee federal law applies after permanent transfers and transferor federal law applies after MDL transfers. Then, in 1984, Professor Richard Marcus wrote a seminal article on transfer and choice of federal law.(17) Marcus viewed Van Duven as based on federalism considerations that were irrelevant in the federal issue context.(18) He argued that every federal judge has the ability and the duty to determine the content of federal law independently, without regard to the positions judges in other federal circuits have taken. Marcus called this conclusion the principle of competence.(19) Based on this principle, Marcus argued that a district court should apply the law of its own circuit after both MDL and permanent transfers.(20)

In In re Korean Air Lines Disaster of September 1, 1983,(21) which involved an MDL transfer, the United States Court of Appeals for the District of Columbia Circuit became the first court to consider in depth the effect of transfer on choice of federal law. Relying heavily on Marcus's analysis and his principle of competence, the court held that transferee federal law should apply. The court considered whether there was any reason to distinguish MDL transfers from permanent transfers and held, as Marcus had suggested, that there was not.(22) Korean Air Lines changed the legal landscape. Although Korean Air Lines confirmed the view that transferee federal law applies after permanent transfers, it repudiated the view that transferor law applies after MDL transfers. Other courts have uniformly followed Korean Air Lines in both context.(23) As a consequence, the federal courts are approaching a new consensus that transferee federal law applies regardless of the type of trasfer.

Recent commentators have challenged Marcus's views and the Korean Air Lines case and have urged that transferor law should govern federal issues after both MDL(24) and permanent(25) The Marcus article and the Korean Air Lines decision have also been undercut to some extent by the Supreme Court s decision in Ferens v. John Deere Co.,(26) Which held that after the transfer of a diversity case on the plaintiff's motion, transferor law continues to apply on state law issues. The Court viewed Van Dusen as protecting more than federalism concerns. It believed that Van Dusen was also based on the desirability of divorcing transfer decisions from choice of law considerations and preserving whatever advantages are entailed in the plaintiff's right to pick the forum.(27)

In light of recent developments, a reexamination f the position that transferee federal law applies regardless of the context is in order. This article argues that the consensus that existed prior to the Marcus article and the Korean Air Lines case, although not based upon the most thorough analysis, comprises the better view: transferee federal law should apply after permanent but not MDL transfers.

Part I of this article examines the Supreme Court's precedents in the analogous forum non conveniens and diversity transfer contexts. Part II examines relevant legal developments with regard to the transfer of cases containing federal issues. Part III considers which law should apply after the permanent transfer of a case containing federal issues and concludes, consistent with the weight of authority, that transferee federal law should apply. Part III, however, supplies a different rationale for this result than the currently prevailing view. In the absence of controlling Supreme Court authority, when a case containing federal issues is commenced in federal court, a district court does not ask which circuit deserves to have its law applied or utilize any choice of law principle. A district court applies the law of its circuit because its circuit court is the next-higher court in the federal hierarchy - the court that will review its decisions. After a permanent transfer, a transferee district court should continue to apply the law of its circuit on federal issues because its circuit, rather than the transferor circuit, has appellate jurisdiction over the case. I call this view the "appellate model." Part III also concludes that Van Dusen and Ferens do not require a departure from the appellate model.

Although the appellate model reaches the same result as the prevailing weight of authority in the permanent transfer context, it reaches a different result in the MDL context. Part IV argues that after an MDL transfer the transferee court should continue to apply transferor federal law. The MDL scheme contemplates that at the conclusion of pretrial proceedings, cases will be remanded to their original fora for trial. As a consequence, any appeal after remand, trial, and final judgment will be to the transferor court of appeals, and the MDL district court should apply that circuit's law.

1. ANALOGOUS SUPREME Court AUTHORITY

   At present, the Supreme Court has not addressed the effect of transfer on the law applicable to federal issues. Any relevant Supreme Court learning must be derived from the Court's decisions in the forum non conveniens and diversity transfer contexts. These cases suggest that the plaintiff has a privilege in the forum selection process that includes the right to influence choice of law. This choice of law advantage is viewed as a vested right that should not be disturbed by transfer. Part I examines the plaintiff's venue and choice of law privileges and their potential application to the federal issue context.

   1. The Plaintiffs Venue Privilege

      The Supreme Court explicitly endorsed a plaintiff's venue privilege in Gulf Oil Corp. v. Gilbert.(28) Prior to 1948, transfers within the federal system were impossible. In Gulf Oil, the Supreme Court affirmed the dismissal of a case pursuant to the common law doctrine of forum non conveniens so that a lawsuit legitimately brought in one federal district could be tried in another.(29) As a consequence, for a short time the forum non conveniens doctrine served as a proxy for transfer.(30)

      The Gulf Oil Court identified two categories of factors that are relevant in ruling on forum non conveniens motions. First, the district court must consider private interest factors, which include access to sources of proof, availability and cost of securing the attendance of witnesses, potential for viewing premises, ability to enforce any judgment, relative obstacles and advantages to a fair trial, and "all other practical problems that make trial of a case easy, expeditious and inexpensive."(31) Second, the district court must consider public interest factors, such as preventing docket congestion, limiting the...