Choice of Law After Transfer

Choice of Law After Transfer

Section 1404(a) lets a district court send “any civil action” to another district or division for the convenience of parties and witnesses and in the interest of justice, but it never says which law the receiving court will apply.¹ That silence matters in diversity cases, where the claims arise under state law. A federal court hearing such a claim ordinarily applies the choice-of-law rules of the state in which it sits, the rule of Klaxon, so the outcome does not turn on whether the plaintiff sued in federal court or in the state court down the block. A transfer breaks the premise of that arrangement. The case leaves the court where it was filed and arrives in a court in another state, with its own choice-of-law rules, limitations periods, and damages rules.

The question, then, is whose choice-of-law rules govern after a § 1404(a) transfer: the transferor's or the transferee's. The answer decides what a transfer motion actually asks for. If transferee law controlled, a request for a handier courtroom would double as a request for different substantive law, and a defendant could improve its legal position just by persuading a judge that another district is more convenient. Van Dusen v. Barrack holds otherwise for the common case: when a defendant obtains transfer from a district where venue was proper, the transferor state's law goes with the case. This section covers the rule, the reasoning behind it, and its effect on the convenience analysis. Later sections take up transfers the plaintiff requests and the settings where transferor law does not follow.

The Van Dusen Rule

Klaxon Co. v. Stentor Electric Mfg. Co. directs a federal court hearing a state-law claim in diversity to apply the choice-of-law rules of the state in which it sits.² The formula serves the policy of Erie R. Co. v. Tompkins: for the same transaction, the accident of a nonresident's suing in federal court instead of in a state court a block away should not lead to a substantially different result.³

After a transfer, the phrase “the state in which it sits” has two candidates. Read literally, it sends the transferee court to its own state's rules. Van Dusen called that a superficial reading and rejected it, because it “directly contradicts the fundamental Erie doctrine” that the formula was written to express.⁴

The facts show why the choice mattered. The defendants in Van Dusen moved under § 1404(a) to transfer wrongful-death actions pending in Pennsylvania to the District of Massachusetts, where, they alleged, most of the witnesses lived and more than 100 other actions were pending.⁵ The convenience case was strong, but the two states' wrongful-death laws differed sharply. The Massachusetts statute made a negligent defendant liable for not less than $2,000 nor more than $20,000, assessed with reference to the degree of culpability. Pennsylvania measured recovery by the losses suffered and set no $20,000 limit.⁶ Recovery under Pennsylvania law might be substantial in each case, while recovery under Massachusetts law might not even equal the expenses of litigation.⁷

Some defendants argued that the differences were irrelevant because Pennsylvania courts, applying their own choice-of-law rules, would apply the Massachusetts statute in its entirety, culpability principle and damage limit included.⁸ The plaintiffs contested what Pennsylvania's laws and choice-of-law rules required.⁹ The district court did not turn on that dispute. It assumed the Pennsylvania choice-of-law rule was irrelevant, because the transfer would be permissible and justified even if accompanied by a significant change of law.¹⁰

The Supreme Court rejected that assumption. It declined to decide what Pennsylvania's rules actually required, because the potential prejudice to the plaintiffs was so substantial that the assumption itself needed review.¹¹ The rule it announced makes the Pennsylvania question unnecessary: where the defendants seek transfer, “the transferee district court must be obligated to apply the state law that would have been applied if there had been no change of venue.”¹² A § 1404(a) transfer should be, with respect to state law, “but a change of courtrooms.”¹³

Two lines of reasoning support the rule. The first looks to the statute's purpose. The history and purposes of § 1404(a) mark it as a federal judicial housekeeping measure, one that deals with the placement of litigation in the federal courts and is intended, on the basis of convenience and fairness, simply to authorize a change of courtrooms.¹⁴ If a transfer also changed the law, parties might treat the section as a forum-shopping instrument, and courts would hesitate to grant transfers that convenience supports, for fear of prejudicing a plaintiff who had chosen a permissible forum.¹⁵ Nothing in the section's language or policy justifies its use by defendants to defeat the advantages of a plaintiff who chose a forum that was inconvenient but proper.¹⁶ The Court gave concrete examples of the danger. The transferee forum might have a shorter statute of limitations or might refuse to hear a claim the transferor state would have heard, and then a defendant's motion to transfer would be tantamount to a motion to dismiss.¹⁷

The second line comes from Erie itself. The “accident” of federal diversity jurisdiction should not let a party use a transfer to reach a result the courts of the state where the action was filed could not have reached. Nonresident defendants properly sued in Pennsylvania would defeat that purpose if they could invoke § 1404(a) to gain the benefit of Massachusetts law.¹⁸ Erie sought identity between federal and state courts, and after a transfer the critical identity is between the federal district court that decides the case and the courts of the state in which the action was filed.¹⁹ For Erie purposes, the transferee judge deems herself sitting in the state where the action was commenced.²⁰

It is therefore misleading to say that continuing to apply the transferor state's law would “alter” state policy. The actions were subject to that law when filed, and the policy of the transferor state would be altered if plaintiffs who had qualified there as personal representatives lost that status because of a defendant's motion to transfer.²¹ Capacity to sue shows the point at work. The court of appeals had assumed that the language of a Rule referring to the law of the state where the district court is held meant the transferee's state, and the Supreme Court treated that assumption as the question to be tested in a § 1404(a) transfer.²²

The law that follows the case includes the transferor state's choice-of-law rules. Klaxon would have required the Pennsylvania federal court to mimic a Pennsylvania state court, so the transferee court mimics it too.²⁴ The transferee judge therefore works through three questions in order. First, what choice-of-law rules would the transferor state's courts apply? Second, which state's law do those rules select? Third, what does that state's substantive law provide?²⁵ The selected law need not belong to the transferor state. If the Van Dusen defendants were right about Pennsylvania's rules, the Massachusetts court would apply the Massachusetts statute, but only because Pennsylvania's rules pointed there.

The rule has a cost. Because each transferred case carries its own state's rules, a court that consolidates cases for trial may try some parties' claims under one law and other parties' claims under another. When the difference concerns damages, similarly situated parties in the same lawsuit may recover different amounts.²⁶

The boundary of the rule is drawn by asking whether the transferor court was ever a proper forum. Van Dusen contrasted § 1404(a) with § 1406(a). Both sections allow transfer instead of dismissal, but § 1406(a) provides for transfer from forums in which venue is wrongly or improperly laid, whereas § 1404(a) operates on the premise that the plaintiff has properly exercised the venue privilege.²⁸ When a case moves for improper venue or lack of personal jurisdiction under § 1406(a), the transferee court follows Klaxon and applies the choice-of-law rules of the state where it sits.²⁹ A plaintiff who files in a proper but inconvenient forum holds a venue privilege and the state-law advantages that come with it, and a defendant's convenience motion should not strip them away. A plaintiff who files where the case never belonged has no comparable privilege, so the transfer has nothing to preserve.

The forum-selection clause cases are a second exception. When a § 1404(a) transfer enforces a valid forum-selection clause, the usual rule that the transferee court applies the law of the transferor court does not apply, and the transferee court applies the choice-of-law rules of the state in which it sits.³⁰ A later section develops that exception.

Van Dusen also decided only the case in front of it, a transfer sought by defendants. The Court said it was not deciding whether the same considerations would govern if a plaintiff sought transfer under § 1404(a), or if the transferor state would simply have dismissed the action on forum non conveniens grounds.³¹

Transferor Law and Convenience

Every § 1404(a) motion asks whether another courtroom would better serve “the convenience of parties and witnesses” and “the interest of justice.”³³ Van Dusen adds that a court cannot answer that question without knowing what law will govern the case once it moves. The Court first separated two inquiries. The holding that a transfer does not alter the state law to be applied does not decide whether the transfer is justified under the criteria of convenience and fairness, though it may make the transfer more or less practical and desirable.³⁴

The link between the inquiries is that the matters weighed in assessing convenience and fairness are pervasively shaped by the contours of the applicable law. The legal rules govern which facts are relevant, which witnesses may be heard, and which evidence is most vital. They also bear on judicial familiarity with the governing law and on the relative ease and practicality of trying the cases in the alternative forums.³⁵ A court that measures convenience without first identifying the governing law is weighing a case whose shape it has not yet determined.

The district court in Van Dusen made that mistake. It found transfer to Massachusetts sufficiently convenient and fair under the laws of either state, because it assumed the transferee court would be free to decide which state's law applied. The Supreme Court did not review that general conclusion or reassess the discretion exercised. It held that the district court, by assuming that freedom, had overlooked or inadequately considered several criteria whose relevance becomes apparent once it is recognized that the transferor state's law will continue to apply after transfer.³⁶ The defect lay in the premise of the convenience judgment, so the remedy was reversal and remand for the district court to reconsider the motion.³⁷

One unanswered question drove everything on the Van Dusen record: what Pennsylvania courts would do with the Massachusetts statute. Suppose they would apply the statute in its entirety. Consolidation with the pending Massachusetts cases would then be freed from any potential difficulties and made more desirable, the plaintiffs' need for witnesses residing in Pennsylvania might be significantly reduced, and the trial would be held in the state where the causes of action arose, before federal judges more familiar with the governing law.³⁸ Now suppose instead that Pennsylvania law is difficult or unclear and might not defer to the Massachusetts statute. A Massachusetts court would have to untangle Pennsylvania's conflict-of-laws treatment, which runs against the observation in Gulf Oil Corp. v. Gilbert that a diversity case belongs in “a forum that is at home with the state law that must govern the case, rather than having a court in some other forum untangle problems in conflict of laws, and in law foreign to itself.”³⁹ The court would also have to try the transferred cases under law that might differ from the law governing the pending Massachusetts cases, which weakens the case for consolidation. Then, as the Court put it, “it may be advantageous to retain the actions in Pennsylvania where the judges possess a more ready familiarity with the local laws.”⁴⁰ The crash, the parties, and the two courthouses are the same in both versions, and the one fact that changes is Pennsylvania's likely treatment of the Massachusetts statute.

The district court had found the Pennsylvania law unsettled, its determination difficult, and the prospect of guidance from Pennsylvania courts uncertain. The Supreme Court held that this uncertainty should itself have been considered as a factor bearing on the desirability of transfer, because § 1404(a) provides for transfer to a more convenient forum, “not to a forum likely to prove equally convenient or inconvenient.”⁴¹ The benefits of transfer, such as consolidation and a trial before judges at home with the law, are only as secure as a court's ability to say what that law is. The Court also set a limit: elements of uncertainty in the transferor state's law would not alone justify denying transfer, because uncertainty is one factor among others.⁴²

An exam stem that pairs a defendant's transfer motion in a diversity case with doubt about what the transferor state's courts would do is testing two points. The judge weighs convenience and fairness in light of the law that will govern after the move, and unsettled transferor law is a factor in that weighing that does not by itself require denial. The usual error is to assume that the transferee court will choose the governing law for itself, which is the assumption that sent Van Dusen back to the district court.