Wednesday, September 28, 2011
One way to think about diversity is as federal "simulation" of state law. In cases of straightforward diversity jurisdiction – where federal courts hear state law disputes between citizens of different states, e.g., P-Cal sues D-Tex under state law claim X for $100k – federal courts are supposed to pretend to be state courts, and thus accurately apply the substantive law of the state, as the highest court of the state would apply such law. In that sense, federal courts sitting in diversity are supposed to be merely providing different tribunals – free of the biases against out-of-staters that allegedly afflict state courts – rather than different law.
Courts, of course, do two things: they resolve disputes and make law, i.e., precedent. A federal court sitting in diversity, however, cannot make state law; state courts are not bound by a federal decision regarding pure state law. A federal appellate court sitting in diversity can only make law that binds lower federal courts, as in “The Second Circuit declared in Decision X that the law of Connecticut, until the Connecticut Supremes say otherwise, is A.” District courts sitting in the Second Circuit would be bound by the Second Circuit’s view of Connecticut law.
To the extent the view of the Second Circuit differs from the view of Connecticut’s intermediate courts on what the law of Connecticut is, there is the opportunity for forum shopping. That is, the “different tribunals” of federal diversity jurisdiction have in fact created a body of law different than the body of law declared by Connecticut’s intermediate courts. An out-of-state plaintiff might be tempted to sue an in-state plaintiff in federal rather than state court, or vice versa, depending on which law was more favorable.
A possible way to avoid this would be if the Second Circuit (for example) were to declare as a jurisprudential rule of the circuit that its views of the law of New York, Connecticut, and Vermont are non-precedential and do not bind lower *federal* courts in the circuit, as to the content of state law. In this sense, the federal appeals court would be saying, formally, “All we are doing in diversity cases is resolving disputes –offering different tribunals – rather than making law.” Certainly the prestige of an appellate court opinion could de facto render, by persuasive force, the applicable law in federal court different than the law in state court. And clearly there are downsides to converting federal diversity courts into non-hierarchical state simulators, but still: does simulation need hierarchy to be effective? It very well may -- I've only thought about it briefly, in connection with this post, but decided it was a fun topic to ponder. Thoughts?