ERIE STEP ZERO 1 ALEXANDER A. REINERT ABSTRACT It is a given, according to commentators and courts, that Erie doctrine, while originating in diversity cases, applies in all cases whatever the basis for federal jurisdiction. Thus, when a federal court asserts jurisdiction over pendent state law claims through the exercise of supplemental jurisdiction in a federal question case, courts regularly apply Erie doctrine to resolve conflict between federal and state law. This consensus, however, obscures critical differences in the lessons of Erie – and application of the Rules of Decision Act – in three different contexts. In the first context, what we might refer to as a “true” Erie dilemma, conflict between state and federal law arises in cases in which the sole basis for jurisdiction is diversity of jurisdiction. In these cases, the federalism concerns motivating Erie and its progeny, as well as important policy considerations, counsel in favor of a muscular enforcement of Erie norms. In the second context, what I will refer to as a mixed Erie dispute, federal and state law conflict in a case in which state law claims are being heard pendent to a federal question case. Sometimes, mostly when conflicts can be resolved claim-by-claim in isolation, full application of the Erie doctrine will be appropriate in these kinds of cases. But in other circumstances, state rules should cede to federal ones even if state rules would control in a true Erie conflict. Finally, where a federal court asserts original jurisdiction over a state law claim through 28 USC § 1331, because of the presence of an embedded federal issue necessary to adjudicate the state law claim, Erie principles will call for a mixed response. In both of these latter examples, the choice of state versus federal law will necessitate close consideration of the importance of the federal interest at stake in the dispute, as well as the impact that choosing state or federal law will have on vindicating the federal interest. Neither courts nor commentators have been sufficiently attentive to the differing impact of Erie principles in these categories of cases. Instead, the given and received wisdom is that Erie plays the same role in policing state-federal conflict, without regard for the basis for federal subject matter jurisdiction. But when considered closely, Erie and its progeny provide the best explanation for why this accepted truth is ill-conceived. For as any first-year civil procedure student learns, Erie’s critical division between substantive law (sourced from the States) and procedural rules (provided by federal law) has gained nuance over time. Erie itself provided no particular guidelines to police the division. And the Court’s decision in Guaranty Trust v. York found a dividing line which quickly was regarded as over-inclusive: there the Court stated that if the choice was outcome-determinative, state law should apply. The introduction of interest balancing in Byrd v. Blue Ridge Cooperative tempered some of the most perverse consequences of Guaranty Trust’s simplistic test, but problems in application remained. In Hanna v. Plumer, the Court settled on a conception of the substantive-procedural division that was narrower than Guaranty Trust as well as faithful to Erie’s fundamental concerns: if the choice were outcome- determinative in light of the twin aims of Erie, Hanna, taught us, then state law may displace federal. 1 Professor of Law, Benjamin N. Cardozo School of Law. Reinert, Erie Step Zero June 15, 2015, Page 2 of 39 Hanna’s outcome-determinative test, however, does not translate well to those claims that fall outside the “true” Erie conflict. For Hanna’s understanding of the twin aims of Erie is itself rooted in policy concerns most directly associated with diversity jurisdiction. The first principle Hanna derived from Erie was that the rule of Swift v. Tyson, in combination with the mechanics of diversity of citizenship, resulted in grave discrimination against in-state citizens when they were being sued by non-citizens. This concern, while salient in any diversity of citizenship case, simply has no application in cases in which subject matter jurisdiction is founded upon “arising under” jurisdiction. And Hanna’s second Erie-derived principle, avoiding forum-shopping, while relevant to federal question cases, has a different federalism timbre in diversity cases. In diversity cases, forum-shopping for certain substantive rules may deprive state courts of the opportunity to adjudicate claims that involve state law through and through. In jurisdiction founded on federal question, by contrast, we have designed the system to encourage litigants to resort to the uniformity, experience and solicitude of federal courts; certain kinds of forum-shopping are overtly welcome, if not encouraged. Finally, Hanna’s focus on outcome-determinativeness raises the question of whether Byrd balancing has a role to play in Erie cases – but one would expect that, in federal question cases, the balancing of interests contemplated by Byrd would be particularly important. Incorporating these insights calls for a new step in Erie analysis, what I am calling “Erie Step Zero.” Before one can decide whether a state rule is “substantive,” and therefore controlling under Erie and the Rules of Decision Act, one must situate the conflict in the particular jurisdictional context in which the case arises. For diversity cases, straightforward application of Erie analysis will be appropriate. But in federal question cases, there may be circumstances in which a state rule that would apply in full force in a diversity action would be of limited application. For instance, where the impact of application of the state law could not be limited to the state law claims pending in a federal question case, federal rather than state rules may control. And in cases in which arising under jurisdiction is asserted as an original matter over a state law claim that raises a substantial issue of federal law, state law may have limited application if it interferes with enforcement of the substantial federal interest justifying the exercise of jurisdiction. To be clear, taking account of the jurisdictional context in which Erie questions arise is not a call to embrace the “heresy” that Judge Friendly and Justice Scalia alike associated with the contention that Erie only applies in diversity cases. Instead, it is to argue that Erie applies, but differently, in cases founded on federal question jurisdiction. This paper introduces a new framework for the conversation about why, when, and how jurisdictional context should matter in Erie questions. *** WORK IN PROGRESS *** *** PLEASE DO NOT CITE OR DISTRIBUTE WITHOUT PERMISSION *** ERIE STEP ZERO ALEXANDER A. REINERT INTRODUCTION The Erie doctrine requires federal courts sitting in diversity jurisdiction to apply state substantive law to resolve state law claims. Almost all scholars and jurists also maintain, however, that Erie applies when federal courts sit in federal question (or “arising under”) jurisdiction.2 This is not surprising, nor is it wrong at a broad level – Erie itself said that “[e]xcept in matters governed by the Federal Constitution or by Acts of Congress, the law to be applied in any case is the law of the state.”3 Yet neither scholars nor federal judges have taken the time to explain the precise role of Erie or the Rules of Decision Act (RDA)4 in Section 1331 cases. Most simply assume that Erie applies to RDA problems with the same force regardless of the jurisdictional basis. This Article offers reasons to question that assumption, and also is the first to provide a framework placing Erie in its jurisdictional context. The failure to engage this question is quite understandable. For although it is assumed that Erie applies in federal question cases, every Erie case decided by the Supreme Court has arisen through diversity jurisdiction.5 Lower federal courts therefore have not had the benefit of the Court’s insight when reviewing the numerous cases in which Erie and RDA questions arise in the federal question context. In the Court’s absence, however, lower courts have lamentably failed to fill the void with any framework for deciding this question. Despite the collective unwillingness to address this issue in more detail, it is an important one that can arise in numerous contexts outside of what we might call a “true” Erie dilemma (where conflict between state and federal law arises in cases in which the sole basis for jurisdiction is diversity of jurisdiction). First, and certainly most common, are those cases in which state law claims are raised because they share a “common nucleus of operative fact” with a claim over which there is an independent basis for arising under jurisdiction.6 For the most part, courts have assumed that Erie applies without any modification to these pendent state law claims. The second category of cases are undoubtedly much smaller, and involve claims created by state law but implicating an essential and substantial question of federal law that is sufficient 2 Infra **. One notable exception will be discussed below. See Peter Westen and Jeffrey S. Lehman, Is There Life for Erie after the Death of Diversity? 78 Mich. L. Rev. 311 (1980) (arguing that Erie doctrine should apply differently in federal question and supplemental jurisdiction claims). 3 Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). 4 28 US Code § 1652. 5 **Infra cite **. To be clear, by “Erie case” I mean every case in which the Court relied upon the Erie doctrine to resolve a choice of law question. In some federal question cases, the Court has explicitly declined to apply Erie analysis. ** Infra **. 6 See 28 U.S.C. 1367; United Mine Workers v. Gibbs, 383 U.S. 715 (1966). These state-law claims share a common nucleus with a parallel federal law claim asserted in the plaintiff’s complaint, or may enter a federal question case as compulsory or permissive counterclaims raised by the defendant.