ERIE PROBLEMS 265

do not violate this provision if reasonablynecessary to maintain the integrity of that

system of rules." Burlington Northern Railroad Co. v. Woods, 467 U.S. 1230 (1987).
Furthermore, because any proposed Rule is scrutinized and approved by an Advisory
Committee, a federal Judicial Conference, and the Supreme Court, plus subjected to a
possible Congressional veto, any Rule that passes through this process is entitled to
"presumptive validity." Id.
i. No Federal Rule found invalid: In fact, no Federal Rule has ever been found
invalid under the Rules Enabling Act. Cf. Wr., 430.
i. Narrow construction to avoid Enabling Act violation: Indeed, the Supreme
Court has sometimes gone out of its way to interpret federal rules narrowly, so
that they will not be found to abridge any litigant's substantive rights and thus not
be invalid under the Rules Enabling Act.

8. Con ict must exist: Hanna v Plumer applies and thus both allows and requires the
federal court to disregard a state law and follow a Federal Rule only if there is a con-
ict between the two.
a. No con ict found: It will sometimes be the case that a Federal Rule and a state rule
cover similar ground but are found not to be in con ict. That is, the court may decide
that the federal rule is addressed to a different issue than the state provision. In that
"no real con ict" scenario, the court must conduct a conventional Erie/Byrd analy-
sis, balancing the state and federal interests against each other.

b. Disagreement about existence of con ict: Federaljudges sitting in diversity will not
always agree about whether a given Federal Rule con icts with a given state rule or
policy (in which case the Federal Rule applies and displaces the state rule, assuming as
will virtually always be the case that the Federal Rule is valid under the Enabling Act)
or doesn't con ict (in which case the court must normally apply the state rule if that
rule strongly re ects the state's substantive policies). For instance, in an important
2010 case, Shady Grove Orthopedic Assoc. v. Allstate Ins. Co., 130 S.Ct. 1431
(2010), the Court split 5-4 on whether a con ict existed, with ve Justices believing
that there was indeed a con ict, so that the state policy must be disregarded.

i. Fragmented opinion: Shady Grove was a badly fragmented holding, with differ-
ent 5-4 majorities standing for different propositions, as we'll see below. The case
is worth analyzing in detail even though doing that will take a good deal of time
and space.
ii. The possible con ict: The case involved a possible con ict between FRCP 23's
requirements for maintaining a class action (see infra, p. 356) and a New York
statute that prohibited any suit to recover a penalty or statutory damages from
proceeding as a class action, except in certain narrow circumstances.

(1) FRCP 23: Federal 23(a) sets out four requirements (e.g., numerosity; see
infra, p. 357) that every federal-court class action must meet. FRCP 23(b) then
says that a class action may be maintained" if all the requirements of 23(a)
are met, as long as the suit falls into one of three categories speci ed in 23(b)
(categories that don't matter for our purposes here). Rule 23 applies to class
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 266 Ch.6 -ASCERTAINING
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actions based solely on diversity, as well as to those based on a federal oes

tion.
(2) NY $901(b): The New York statute was §901 of the state's "Civil Practio
Law and Rules" (CPLR), the basic New York statute governing the rules for
litigation. Section 901(a) closely echoes FRCP 23(a)'s requirements for cass
actions. But the legislature added $901(b), which has no counterpart infederal
law. 901(6) says that if a suit is brought "to recover a penalty or a minimum
measure of recovery," the suit may not be maintained as a classaction.»
unless a statute expressly allows a class action suit to be brought to recover the

penalty orminimumdamages.
ii. Facts: Here's how the suit arose: Shady Grove Orthopedics provided medicalcare
to Sonia Galvez after she had a car accident. In return, Galvez assigned her rights
to insurance bene ts under a policy she had with D (Allstate). A special NewYork
statute requires that insurance companies pay such claims (or deny them) within
30 days, and also provides for statutory interest at 2% per month on any claimthat
is paid late. Shady Grove led a claim, which D paid; but D's payment wasmade
later than the 30-day limit, and without the statutory interest.

(1) Class action in diversity: Shady Grove brought a diversity-only classaction

suit in New York federal court, seeking the unpaid interest. The overdueinter-
est on Shady Grove's individual claim came to only about $500, far belowthe
S75,000 amount in controversy requirement for individual diversity actions
(see supra, p. 138). There were no federal question claims in the case.There-

0 2a fore, the only way Shady Grove could satisfy the amount incontroversy,and
thus maintain its suit, was if the suit could go forward as a class action. So
92 bShady Grove sought relief not just for itself but on behalf of a classde nedas
everyone to whom D owed interest under the 2%-per-month New York provi-
sion.

(2) Suit dismissed: The lower federal courts held that Shady Grove's claim must
be dismissed for lack of subject matter jurisdiction. These courts believedthat
there was no con ict between FRCP 23 and the New York statute, because

hto that
they were designed to deal with different issues. Therefore, these courts held
the New York "no classaction suits for penalties" rule couldandshould
be applied, depriving the federal courts of the right to hear the case as aclass
action.

iv. ReversedbyU.S.SupremeCourt: But theSupremeCourtreversed,allowing

b Shady Grove's class action suit to go forward. Five members of the courtbelieved

2. The statute doesn't expressly limit itself to suits brought in New York State; it says simply that aclass-
action suit for a penalty or statutory damages "shall not be maintained." It's not clear whether the legislatorswere
intentionally trying to apply the provision to federal-court actions based on state law, or were instead simply not
focusing on how the statute would apply anywhere but in the New York State courts.

3. The usual rule against aggregating the claims of multiple plaintiff's to meet the amount in controversy
requirement is relaxed in diversity class actions, as long as the claims put together are for $5 million or more.See
28 U.S.C. Ș1332(d)(2)., part of the Class Action Fairness Act, discussed supra, p. 140 and infra, p. 370.
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 ERIE PROBLEMS 267

that there was indeeda con ict between Federal Rule 23 and the New York stat-
ute. Consequently, as long as Rule 23 did not violate the Enabling Act, that Rule
would displace state law and would thus permit the suit to go forward as a diver-
sity class action. And these ve justices believed that Rule 23 was valid under the
Enabling Act.
(1) Dissent: The four other members of the Court, in dissent, believed that (1)
there was no actual con ict between Federal Rule 23 and the New York stat-
ute; and (2) Rule 23 should be interpreted to honor the New York "no class
actions for penalties" rule, because the New York rule, though contained in a
procedural statute, embodied a substantive policy entitled to deference under
Erie.
. Fragmentation: Actually, theopinions in ShadyGrove were more fragmented
than the above summary suggests. There were three opinions:

tTi [1]: FivemembersofCourt, in anopinionbyJusticeScalia,agreedthatthere was

a con ict between Federal Rule 23 and the New York provision, and that
Rule 23 allowed the class action to go forward even though it could not have
been brought in the New York courts.
[2] But one of those ve Justices, Stevens, although he concurred in the above
nbehut) oib result, did not agree with all of Scalia'sreasoning.Stevensagreed with the
dissenters on an important issue, about what test should be used to determine

*is the existence of a con ict.

[31 The four remaining members, in a dissent by Justice Ginsburg, agreed with
the lower courts that (1) there was no con ict between the federal rule and
the New York provision, and (2) the suit should therefore not be permitted to
go forward as a federal class action because this would violate a state sub-
stantive policy. Justice Stevens did not agree with either of these two proposi-
tions, but he did agree with the dissenters (and disagreed with the four justices
led by Scalia) on the test that should be used for determining whether there is
t a con ictbetweenthefederalruleandastaterule.
So neither the four-Justice bloc led by Scalia nor the four-Justice bloc led by Gins-
burg had a complete victory each enlisted Justice Stevens as a fth vote for one
or more important propositions. There was an unusual alignment, which featured
Roberts and Scalia opposing Alito, and Sotomayor opposing Ginsburg.
vi. Scalia's opinion: Justice Scalia concluded that Rule 23 directly con icted with
the New York no-penalties-in-class-actions statute, and therefore displaced the
New York statute. On this point, he spoke for ve Justices.
(1) Summary of decision-tree: Scalia explained that under the Court's "frame-
work" for assessing con icts between federal rules and state laws, "We must
rst determine whether Rule 23 answersthe question in dispute. ..I t does it
governs New York's lawnotwithstanding - unless itexceedsstatutory
authorization[.] ... We do not wade into Erie's murky waters unless the fed-
eral rule is inapplicable or invalid (citing Hanna v Plumer).
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(2) Rule 23 applies: Scalia then concluded that on the key issue of whether the
plaintiffs could maintain a federal class. action on these facts, FRCP 23 pro-
vided an answer. The rules said that a class action "may be maintained" ifthe
requirements of 23(a) (numerosity, etc.) are satis ed, and if the case ts into
one of the three categories described in 23(b). Therefore, he said, Rule 23
"creates a categorical rule entitling a plaintiff whose suit meets the speci ed
criteria to pursue his claim as a class action." Since the New York statutesaid
that the case couldnt go forward as a class action, and Rule 23 said that it
could, the two were in direct con ict, and the state rule prohibiting a class
action on these facts could not be given effect in the federal court.

(3) “Purpose" ignored: Scalia acknowledged that the New York Legislature's
purpose in enacting §901(b) was to limit monetary remedies awarded inclass-
action proceedings, a substantive purpose. But to Scalia, the state's purpose
(and the fact that that purpose was substantive) were irrelevant since the
"clear text" of the New York statute was to prevent a plaintiff from evenstart-
ing a class action seeking penalties, and since FRCP 23 allowed such a class
vhsoeo action, the two were in con ict, and the Federal Rule had to prevail.

(4) The state-by-state variation problem: Scalia argued that if a state'slegisla-

od: al i ato tivepurposematteredindeterminingwhetherstateandfederalrulescon-
tb ee icted,then"oneState
statutecouldsurvive
pre-emption(and
accordingly
st o affect the procedures in federal court) while another State's identical aw
would not, merely because its authors had different aspirations." Further-
more, he said, district judges would often be required to conduct complex

i lt
ine
investigations into often-unclear state legislative history.
(5) Validity of Rule 23: Given that FRCP 23 and the New York statute were in
direct con ict, the only way the policy embodied in the state statute couldbe
given effect by the federal court was if Rule 23 violated the Enabling Act's
requirement that a federal rule shall not "abridge, enlarge or modify anysub-
stantive right." For Scalia (joined on this point only by three otherJustices),
Sibbach v. Wilson (supra, p. 260) had long-since established how to answer
ad e thequestionofwhetheraRuleviolatedtheEnablingAct: "thevalidityofa
federal rule depends entirely upon whether it regulates procedure ... if itdoes,
it is authorized by [the Enabling Act] and is valid in all jurisdictions, with
respect to all claims, regardless of its incidental effect on state-created
rights." He conceded that Sibbach may have been a clumsy interpretation of
the Enabling Act. But, he said, stare decisis dictated that Sibbach not beover-
ruled without a "special justi cation," and that justi cation hadn'tadequately
been shown in this case.

(6) Forum-shopping: Finally, Scalia, joined by the same three Justices,acknowl-

edged that keeping the federal court door open to diversity class actions that
could not have been brought in state court would inevitably produce forum
shopping. But, he said, "[A] federal rule governing procedure is valid
whether or not it alters theoutcomne of the case in a way that inducesforum
shopping."
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 ERIE PROBLEMS 269

vii. Stevens' concurrence: Justice Stevens concurred in part with Justice Scalia, and
concurred with the result: that Federal Rule 23 was in direct con ict with the New
York rule here, and must therefore displace the New York ule as long as Rule 23
was valid under the Enabling Act. And heagreed with Scalia that Rule 23even
when interpreted in a way that would knock out the New York rule was indeed
valid under the Enabling Act. So on these overall points, Stevens supplied the nec-
essary fth vote.
(1) Disagreement with Scalia: But Stevens disagreed with Scalia about how to
determine whether a given Federal Rule violates the Enabling Act when the
Rule is applied in the context of a particular state substantive provision. As
noted, Scalia believed that as long as the Federal Rule regulates procedure,"
that was the end of the matter -the Rule was valid, no matter how much it
interfered with some state substantive right. But Stevens thought that this read-
ing ignored the Enabling Act's command that no federal rule "abridge, enlarge
or modify any substantive right." Even ifa given federal rule "regulates proce-
dure," if the rule "displaces a state rule that is 'procedural' in the ordinary
sense of the term ... but [that is] suf ciently interwoven with the scope of a
substantive right or remedy, there would be an Enabling Act problem, and
the federal rule would have to give way." So on this point, Stevens agreed with
Ginsburgs dissent (which we'll discuss below), not Scalia's 4-Justice opinion.
(2) Disagreement with Ginsburg: But Stevensdisagreed with Ginsburg's belief
that the present case amounted to such a con ict betweena federal rule and a
state's substantive right or remedy. For him, the Nevw York statute was a classi-
cally procedural rule, comparable to a state rule setting ling fees or deadlines
for submitting briefs–it was notdeeply bound up with any substantive right
that the Enabling Act protected from abridgment.
vi. Ginsburg's dissent:JusticeGinsburg(joined byKennedy, Breyer, and Alito) dis-
sented not only on the result, but on the threshold issue of whether this was a case
that should be governed by Erie principles or instead the validity of the federal
rule under the Enabling Act. Ginsburg believed that (1 ) Rule 23 and the New York
rule were directed at different issues, and were therefore not in con ict; (2) New
York intended to pursue important substantive policies in its rule; and (3) this was
therefore a classic Erie-type issue, in which the federal rule must be applied in a
way that would allow the state substantive policy to prevail. That meant that the
federal courts shouldn't hear the case as a class action, since the state courts
wouldn't hear it as one.
ix. Signi cance of Shady Grove: Shady Grove is a badly fragmented decision, but
here's what it seems to establish:
(1) FRCP 23 is valid, and controls: At the narrowest level, Shady Grove estab-
lishes that Federal Rule 23 is valid under the Rules Enabling Act, and is the
exclusive determinant of when a federal diversity class action may be
brought. If an action satis es all the requirements of Rule 23, any state proce-
dural provision that says that the particular claim could not be brought in state
court (or, for that matter, in federal court) may not be honored by the federal
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court. And that's true even though the state provision is extremely outcome
determinative, as was the state rule in Shady Grove, which said that noclass
action for statutory damages could be brought. (The Scalia bloc plusStevens
represented ve votes for everything stated in this paragraph.)
(2) Efect of con ict: More generally, Shady Grove con rms that if aFederal
Rule of Civil Procedure and a state law deal with the same issue in con icting
ways, then the federal rule will apply (and displace the state provision) aslong
as the federal rule is valid under the Enabling Act. And that's true even
though applying the federal rule will promote a large degree offorum-shop-
ping. This central holding of Hanna v Plumer remains unchanged byShady
Grove, and, indeed, no member of the Shady Grove Court believedotherwise.
(But Shady Grove itself illustrates that the Court may be badly splitabout
)whether a con ict really exists on a particular set of facts.)
(3) Still no FRCP found to violate Enabling Act: Once it's clear that there is a
con ict between the federal and state rule, the validity of the federal rule
under the Enabling Act must be checked. But it remains the case, afterShady
Grove, that no federal rule has ever been held to violate the EnablingAct.
(4) Judging validity under Enabling Act: A majority of the Court (the fourdis-
senters plus Stevens) believes that the fact that a federal rule “regulatesproce-

t
dure" does not automatically mean that the rule governing is validunderthe
Enabling Act. The Enabling Act forbids a federal rule from modifying or
abridging a state substantive right. And this Enabling Act prohibitionmeans
that even a federal rule that regulates procedure, if it squarely con icts witha
state substantive rule, must not be applied in a way that displaces thestate
rule. (But no member of the Court seemed to believe that Rule 23 violatesthe
Enabling Act; they just disagreed about how to reach the conclusion thatit
didn't violate it.)
(5) Consulting state purpose: Proposition [4] above means that for a majority
(the dissenters plus Stevens), to determine whether a federal procedural ruleis
valid under the Enabling Act, looking at state legislative purpose inenacting
even an apparently-procedural rule will sometimes be necessary. For if the
state, in enacting a basically procedural rule, was intending to set thecontours
of a substantive right, and had a signi cant interest in doing so, then forthese
ve Justices the federal rule may have to be interpreted in such a way that
does not displace the state rule. (But only the four dissenters believedthat
New York was clearly pursuing a substantive policy; Stevens thought that
New York was making a "classically procedural calibration," so that the fed-
eral rule could be applied in a way that would displace state law without
thereby violating the Enabling Act.)
x. Analysis tip: Even after Shady Grove, if you have to analyze a federalprocedural
rule that directly con icts with a state rule that is essentially “procedural" you
should conclude that the federal rule is valid and must be applied. And that'strue
even though applying the federal rule will displace state law in anoutcome-deter
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 ERIE PROBLEMS 271

minative way, unless applying the federal rule clearly "modi es or abridges" a
state substantive right, something that will virtually never be found to occur.
9. Con ict between congressional statute and state policy: So far, we have assumed that
the federal-state con ict is either between a federal policy and a state statute or policy (the
standard Erie situation), or between one of the Federal Rules and a state statute or policy
(the Hanna v. Plumer situation). But there is at least one other interesting type of federal-
state con ict: that between a federal statute directly enacted by Congress, and a state pol-
icy or statute. If a valid congressionally-enactedprocedural statute outside of the Federal
Rules con icts with a state law or policy, the federal statute will control even though this
may promote forumn shopping. Cf. Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22
(1988).

Quiz Yourselfon
ERIE PROBLEMS
65.Phas brought a negligence action against D (based on diversity) in federal district court for the District of
lowa. P's complaint alleges that P was a social guest in D's house, that P fell when a wooden step on a
stairway inside the house broke, and that had D used ordinary reasonable care in keeping his house safe,
he would have discovered the danger and avoided it. (The complaint does not claim that D knew of the
defect, merely that a reasonable person in D's position would have learned of the defect and xed it.) A
ve-year-old decision of the Iowa Supreme Court holds that a social guest is only a "licensee," not an
"invitee," and that a property owner owes a licensee no duty of inspection. A number of courts in other
states have in the last few years abolished the licensee/invitee distinction, and have held that a property
owner owes a duty of reasonable inspection to a licensee as well as an invitee. The federal district judge in
whose court P's action is pending believes that these newer decisions represent the much better view.
However, there is no evidence that the Iowa Supreme Court would change its attitude on this issue, since
the court has on more recent occasions rejected other chances to expand tort liability. Should the federal
judge impose upon D the duty of making reasonable inspection of his premises?

66.Same basic fact pattern as the prior question. Now, however, assume that the only lowa case on the issue
of whethera property owner owes a duty of inspection to a licensee is a 50-year-old decision by the lowa
SupremeCourt, in which the court refused to impose any such duty of inspection. Since the courts of most
states that have considered the matter within the past ve years have rejected the traditional rule and
imposed a duty of inspection on behalf of a licensee, the federal judge believes that the lowa Supreme
Court would probably follow this modern trend if it heard the case today. Should the federal court impose
a duty of inspection on D?

67.P has sued D in federal district court for the Central District of California. The suit is based on diversity
(since P is a citizen of California and D is a citizen of Arizona). P claims that D negligently drove an auto-
mobile, thus injuring P in an accident. The accident took place in Arizona. Under California state court
decisions, any suit brought in the California state courts arising out of an auto accident is to be decided
under California law if the plaintiff is a California resident, even if the accident took place in another
state. This Califormia approach is a minority and old-fashioned one; nearly every other state applies the
rule of lex locus delicti," whereby in auto accident cases the law of the state where the accident took
place is the law that is used. The federal judge hearing the P-D suit believes that the majority lex locus
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delicti" approach is the much sounder one. In the P-D suit the issue arises whether California statesub-
stantive lavw (under which contributory negligence is not a defense) or Arizona law (under which contrib-
utory negligence is still a defense) should be applied. The federal judge hearing the case believes thatthe
California law (no contributory negligence defense) is the better approach. Which state's substantivelaw
of negligence, California's or Arizona's, should be applied by the federal judge?

68. The state of Acme, in order to reduce health insurance costs, enacted a statute capping damages in any
iot action for medical malpractice brought in the Acme state courts at $1 MM of compensatorydamages,and
zero punitive damages. P, a citizen of Beta, had a knee replacement done by D, a surgeon living in Acme;
the operation was done in Acme. Due to D's gross negligence during the operation, the replacementfailed
and had to be replaced. P has now brought a diversity malpractice suit against D in Acme federal district
court, seeking $1 MM of compensatory damages and $500,000 of punitive damages. Assume thatfederal
courts, when they are free to make their own decision, typically award punitive damages in tort actions if
the court believes that the defendant behaved with gross negligence and that the award of punitive dam-
ages will have a useful deterrent effect. If the federal court, after trial, believes that these conditionshave
been satis ed, may the court award P $100,000 in punitive damages?

69. P has sued D in diversity in federal court for the Northern District of Georgia. P seeks to assert againstD
a tort claim relating to an accident, as well as a breach of contract claim arising from a prior businessrela-
tionship between P and D, having nothing to do with the accident. Under a Georgia statute, a tort claim
may not be joined with a contract claim against the same defendant in state court, if the two claimsrelate
to different transactions. However, joinder of unrelated contract and tort claims against a singledefendant
is expressly allowed by FRCP 18(a). In the federal action, may P join his contract and tort claimsagainst
D in a single action?

70. P and D signed a contract whereby P was to perform personal services for D. Almost immediately, it
became clear to P that D was not living up to his part of the bargain, with respect to the duties that Pwas
to be given. However, P tried to work things out with D for a long time (reasonable conduct by P in the
circumstances), and therefore took no legal action for more than two years. He then brought a diversity
action against D in federal district court for the District of Kansas, the state in which the contractwas
signed and was being performed. Under Kansas law, any action (whether legal or equitable) related to
performance of a contract must be brought within two years of the performance or non-performance com-
plained of. P does not seek damages in his federal suit; instead, he seeks to have the contract declared
rescinded on account of D's nonperformance.

The federal courts have traditionally regarded actions to rescinda contract as being primarily equitable,
and they apply the equitable doctrine of laches rather than any strict statute of limitations doctrinewhen
the action is primarily equitable. Thus under general federal principles, P's suit will not be time-bared so
long as P has acted within a "reasonable" period of time considering the circumstances. Should the federal
court for the District of Kansas regard P's action as time-barred?

71. P has brought a diversity suit against D in federal district court for Montana; the suit alleges negligence.
In both the Montana state trial courts and the federal district court of Montana, the applicable rules pro-
vide for a six-person jury. By Montana statute, the verdict in a civil case needs to be by only a 5/6's major-
ity. The state rule allowing a 5/6's majority was adopted to reduce the number of hung juries andre-trials,
thus reducing court congestion. By a long-standing federal policy a federal civil jury must reach aunani-
mous verdict. (There is no federal statute or Rule of Civil Procedure which directly requires unanimity.)
Should the federal district judge recognize a verdict on which ve out of the six jurors agree?
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 ERIE PROBLEMS 273

Answers
s No. This is a classic Erie situation. There is neither a state nor a federal statute on the matter. State com-
6
mon law creates the right being sued upon. Therefore, the federal court in diversity must apply the com-
mon law (judge-made law) of the state where the federal court sits, and may not apply the federal
iudge's own opinion of what a desirable rule would be. Since all the evidence is that the lowa Supreme
Court would not impose any duty of inspection on D here, the federal court may not impose any such duty
either.

K6.Yes. Again, the only issue is what the highest court of the state where the federal court sits would do if it
heard the issue today. Since the facts indicate that the lowa Supreme Court would probably overturn its
50-year-old ruling today, the federal court is not bound by that old ruling, and is instead required to
behaveas it thinks the lowa court would behave today, by imposing the duty on D.

67. California's. In deciding an Erie case, the federal judge must apply the law of the state where the federal
court sits. This principle includes the forum state's con ict-of-laws principles as well as its substantive
principles. Therefore, the federal judge must apply California's con icts rules. Since California's con-
icts rules would make California rather than Arizona law applicable, the court must follow California's
substantive rules as well. One way to remember this is to apply the general principle that the federal court
must reach the same underlying decision as the court of the state where the federal judge sits. (Observe
that if California would apply Arizona law, then the task for the federal judge is not to apply what it thinks
Arizona'sstate courts would decide, but rather, to apply what it thinks California's courts would think that
Arizona's laws are!) See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487 (1941).

68.No. There is no federal rule or statute on point, and the case is a diversity suit based solely on state law.
Therefore, conventional Erie analysis applies: if the state interest is essentially substantive, then the fed-
eral court must apply state law, unless there are very strong federal procedural interests in not doing so.
Here, although the state statute has a small procedural aspect (it refers to what should happen in litigation
in the Acme courts), the state is pursuing a heavily-substantive interest: Acme is mainly trying to affect
how much money malpractice plaintifts can recover. Furthermore, the choice of federal or state law is
highly outcome-determinative; P has a shot at large punitive damages (and uncapped compensatory dam-
ages)if federal common law principles apply, but no shot at punitive damáges (and a $1 MM compensa-
torycap) if state law applies. Because of this highly outcome-determinative aspect of the choice, out-of-
statepatients in P's situation will have a strong incentive to forum-shop (by suing in diversity) if federal
common law is to be applied. On the other side of the balance, there is no strong federal procedural inter-
est(suchas an interest in national uniformity of procedures) that will be negatively affected by following
state law. So this is an easy case: the heavily substantive, and heavily outcome-determinative, state law
imposing damage caps must be applied. See, e.g., Gasperini v. Center for Humanities, 518 U.S. 41s
(1996)(supra p. 259): "A statutory cap on damages would supply substantive law for Erie purposes."

69.Yes. This is an instance in which the federal policy is embodied in a Federal Rule of Civil Procedure that
is exactly on point, and that is in direct con ict with the relevant state rule. In situations involving such a
direct con ict, Erie doctrine (and the avoidance of forum shopping) does not apply at all. Instead, the sole
questionis whether the federal rule is a valid one. See Hannav Plumer, 380 U.S. 460 (1965) and Shady
Grove Orthopedic Assoc. v Allstate Ins. Co., 130 S.Ct. 1431 (2010). Since no Federal Rule of Civil Pro-
cedurehas ever been found invalid under the Rules Enabling Act (i.e., no rule has ever been found to vio-
late the Enabling Act's ban on the abridgement or enlargement of a litigant's substantive rights), Rule
18(a)'srule of permissive joinder is certainly valid. Therefore, the federal court must follow Rule 18(a),
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 274 Ch. 6 -ASCERTAINING APPLICABLE LAW

and must disregard the policy behind the con icting state rule. See Har-Pen Truck Lines, Inc. v Mills, 378
F.2d 705 (5th Cir. 1967).

70. Yes. In diversity suits, the federal court must apply the state-law statute of limitations. Even though a
statute of limitations has a "procedural" aspect, the choice of statute of limitations is heavily outcome.
determinative. For example, here P will be allowed to maintain his suit if the federal laches approachis
used, but will not be allowed to maintain suit at all if the statestatute of limitations is used-the choice
of law, therefore, is completely outcome determinative. The doctrine that state statutes of limitations con-
trol in diversity actions is the central holding of one of the most important Erie cases of all, Guaranty
Trust Co. v. York, 326 U.S. 99 (1945).

71. No. Here, as in the previous question, we have a con ict between a federal policy not embodied speci -
cally in a Federal Rule, and a state policy or statute. Therefore, we must balance the two. The state interest
here is relatively weak, and is in any event not thwarted by following the federal policy (since thenumber
of hung juries and thus re-trials in state court will probably not be increased if the federal court has ahung
jury). Conversely, the federal policy is a long-standing and apparently strong one it is related to the
Seventh Amendment's policy of giving maximum weight to the jury system, for instance. Similarly, there
is a strong federal interest in having a treatment of the unanimity issue that is the same from one federal
courtroom to another. Also, the choice of law is quite unlikely to be outcome determinative. -it is hard to
say, for instance, whether having aless-than-unanimous jury verdict would help P orD, since it isunclear
who would get ve but not sixvotes. And the choiceof law is unlikely to promote forum shopping-it is
S hard to imagine that P will sue in state rather than federal court because juries in the former don't haveto
be unanimous.

All in all, the federal interests seem so much stronger than the state interests, and the risk of forum shop-
ping so small, that the court will probably decide to follow the federal policy requiring unanimity. See,
0 e.g., Masino v Outboard Marine Corp., 652 F.2d 330 (3d Cir. 1981, in which the court so decided.

IV. FEDERAL COMMON LAW

A. Federal common law still exists: Even though the Erie case makes it clear that there is no
general federal common law, there are still particular instances in which federal common law
is applied. That is, there are instances in which the federal court is free to disregard state law in
making judicial interpretations.
1. Federal question cases: Most such instances arise in caşes in which federal jurisdiction
is founded on something other than diversity, such as federal question cases, cases in
which the U.S. is a party, cases between a state and citizens of another state, or admiralty
cases.

2. General rule: In most federal question cases, federal common law, not state common
law, applies.

a. Statutory construction: When the precise meaning of a federal statute is at issue,

the federal court is of course free to follow federal decisions, and to ignore statecon-
structions of the statute. This is not really even federal "common law" so much aspure
statutory interpretation.
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