#12418 - Federal Common Law - Federal Courts Author-1

• VII. Federal Common Law

  Background

The term federal common law (“FCL”) refers to “federal rules of decision whose content cannot be traced directly by traditional methods of interpretation to federal statutory or constitutional commands.” Unlike pre-Erie “general” common law, FCL is limited to areas of distinctively federal concern, but is capable of acting directly on the State courts through the Supremacy Clause.

In general, federal courts are competent to promulgate FCL where there are “uniquely federal interests” (e.g., Boyle) and there is no federal statutory law to apply. Uniquely federal interests may exist with respect to the rights of the United States in tort actions (Standard Oil), or with respect to commercial paper (Clearfield Trust), or with respect to the civil liability of federal officials for actions taken in the course of their duty (Boyle (citing cases)). Uniquely federal interests may also exist where private party litigation will “directly affect the terms of Government contracts” (Boyle) or threaten to create tort liability for adherence to federal rules (WDAY – note that this case seems to merge the “uniquely federal interest” and “significant conflict” inquiry that Boyle treats as analytically distinct). Finally, uniquely federal interests warranting the creation of FCL exist with respect to interstate disputes, foreign affairs disputes (Sabbatino), and admiralty cases.

Even if “uniquely federal interests” are found, it is necessary to demonstrate “significant conflict … between an identifiable federal policy or interest and the operation of state law,” or that “the application of state law would frustrate specific objectives of federal legislation” (Boyle). A lesser showing of conflict is required to establish competence to make FCL than would be required to establish preemption (Boyle).

COMPETENCE AND DISCRETION. In Clearfield Trust, the Court established FCL to govern the rights and duties of the United States on commercial paper that it issues. The Court reasoned (1) there must be some federal law to govern the rights of the United States in its capacity of sovereign; and (2) that, absent an act of Congress supplying such federal law, only federal courts could “fashion the governing rule of law.”

Judge Friendly criticized Clearfield Trust. Although he agreed that the federal courts had competence to formulate a FCL rule, he did not believe that the Court adequately discussed whether, as a matter of discretion, such a rule should be formulated. This distinction—between competence and discretion—has influenced subsequent decisions on FCL. For example, in Kimbell Foods, the Court reaffirmed Clearfield Trust’s competence holding, but held that “when there is little need for a nationally uniform body of law, state law may be incorporated as the federal rule of decision.”

THEORIES OF FCL. The first theory posits that federal courts possess general authority to craft common law whenever federal interests are at stake (i.e., in areas where Congress or the Executive could act). The second theory sees FCL as legitimate only when it is traceable to a source of federal authority—either the Constitution itself or a statutory grant.

Professor Hill’s version of the second theory argues that FCL is authorized by the structure of the Constitution in four areas: interstate controversies, admiralty, proprietary transactions of the United States, and international relations.

In D’Oench, Duhme & Co., Justice Jackson suggested that a statute establishing a federal program could be understood to include an implied delegation to judges to correct omissions in the scheme.

RULES OF DECISION ACT. The Rules of Decision Act provides that “the laws of the several states, except where the Constitution or treaties of the United States or Acts of Congress otherwise require or provide, shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply.” FCL can be justified as displacing state law because the underlying federal law “otherwise require[s]” (DelCostello).

INCORPORATING STATE LAW AS A MATTER OF STATUTORY INTERPRETATION. The Court has often said that “in the absence of a plain indication to the contrary, Congress when it enacts a statute is not making the application of the federal act dependent on state law” (Jerome). For example, a federal bank robbery statute that prohibited entering a bank with intent to commit a “felony” did not incorporate each state’s definition of “felony” but referred only to federal felonies (Jerome). But in Beaver County, the Court held that a statute that permitted taxation of a federal agency’s “real property” meant to incorporate state law definitions of “real property.”

A JURISDICTIONAL GRANT IS NOT SUFFICIENT TO AUTHORIZE THE CREATION OF FEDERAL COMMON LAW (EXCEPT WHEN IT IS). Erie emphasized that “the vesting of jurisdiction in the federal courts does not in and of itself give rise to authority to formulate federal common law.” But where a jurisdictional grant would be rendered inoperative or unconstitutional absent FCL authority, the Court often finds FCL authority. Consider the Constitution’s grant of admiralty and interstate dispute jurisdiction, Sosa’s treatment of the Alien Tort Statute,¹ and Lincoln Mill’s treatment of the Taft-Hartley Act. The Court may be especially willing to find FCL authority from a jurisdictional grant where structural and purposive arguments suggest that reliance on state law for actions under the jurisdictional grant would be inappropriate (e.g., Lincoln Mills).

Puzzlingly, FCL promulgated under a bare jurisdictional grant (such as that in Lincoln Mills and under federal admiralty jurisdiction) has been held to govern in state court (Local 174). How can a grant of jurisdiction to the federal courts alter the substantive law that must apply in state court?

FCL GOVERNING FOREIGN AFFAIRS LAW. In Sabbatino, the Court held that federal courts are competent to create FCL governing the “ordering of our relationships with other members of the international community,” because of the uniquely federal interest in foreign relations and the risk that application of state law would frustrate these interests. Then, the Sabbatino set forth a FCL formulation of the “act of state” doctrine.

Three other cases bear mention, although they do not fit any particular pattern. In Barclays Bank, the Court declined to use FCL to preempt state law taxation on multinational corporations, reasoning that the judiciary was unfit to balance the risk of foreign retaliation against California against the right of the United States to let its states tax as they please. In Crosby, the Court found preempted (based on a federal statute) a Massachusetts law restricting the authority of state agencies to purchase goods or services from companies doing business in Myanmar, relying on a theory of obstacle preemption. And in Garamendi, the Court invalidated a California statute requiring European insurance companies to make certain disclosures related to their treatment of Holocaust victims, reasoning that the statute conflicted with the President’s policies in this area.

CIL and Sosa. In Sosa, the Court held that the Alien Tort Statute was purely jurisdictional, but that a narrow class of FCL causes of action—derived from the CIL—were cognizable under it. Thus, it seems that CIL is still part of federal law (Paquete Habana). Sosa’s recognition that CIL is federal law allows the federal courts to exercise “arising under” jurisdiction in cases brought under the ATS between non-diverse parties (Filartiga). If CIL were not recognized as a form of FCL, there would be no “arising under” jurisdiction in cases under the ATS.

Implied Remedies Under Statutes

During the 1960s, the Court would imply a statutory right of action where “necessary to make effective the congressional purpose” (J.I. Case Co. v. Borak). In Cort, the Court refused to infer a private right of action from a criminal statute. The Court set forth a four-part test to determine whether a private right of action should be inferred. According to the Cort framework, a court must ask (1) whether the plaintiff is one of the class for whose especial benefit a statute was enacted; (2) whether there was any...