Forum Shopping and the Rules

A plaintiff who files in federal court because a Federal Rule gives what the state court withholds is forum shopping, and discouraging forum shopping is one of Erie’s twin aims. The objection feels decisive: a Rule that rewards the choice of federal court seems to produce the very result Erie was meant to prevent. Hanna v. Plumer answered by changing the question. The Erie rule and the guidelines suggested in York, the Court said, “were created to serve another purpose altogether,” so they are not the test for a Federal Rule.¹ On the Hanna approach, the two questions that decide whether a Rule controls (does it cover the disputed point, and is it valid) do not turn on forum shopping. This section shows where forum shopping belongs instead, how Shady Grove applied that point while conceding that the incentive was real, and why Semtek appears to say otherwise.

Where the Twin Aims Operate

Erie’s twin aims are the discouragement of forum shopping and the avoidance of inequitable administration of the laws. Hanna refused to treat them as a test for a Federal Rule because the defendant’s argument rested on a more fundamental flaw: the assumption that the rule of Erie is the appropriate test of a Rule’s validity, and therefore of its applicability.² The Court conceded that it had sometimes held a state rule applicable in the face of an argument that a Federal Rule governed the situation. It nonetheless observed that Erie has never been invoked to void a Federal Rule.³

The twin aims operate in the space that no Rule occupies. The Shady Grove plurality drew the line: forum shopping is unacceptable when it results from judge-made rules created to fill supposed “gaps” in positive federal law. Where neither the Constitution, a treaty, nor a statute provides the rule of decision or authorizes a federal court to supply one, state law must govern, because there can be no other law.⁴ A federal judge who fills such a gap with an unwritten practice makes law on the judge’s own authority. A plaintiff who sees that the practice differs from state law can then pick the court in order to pick the rule.

A Federal Rule leaves no such gap. It reflects Congress’s exercise, through the Enabling Act, of its power over federal procedure, so the departure from state practice was chosen and not improvised. Hanna warned that a Rule forced to cease functioning whenever it alters the mode of enforcing state-created rights would “disembowel either the Constitution’s grant of power over federal procedure or Congress’ attempt to exercise that power in the Enabling Act.”⁵

Even in the unguided choice, the label a state court gives its own rule does not settle the question. The Shady Grove dissent noted that statutes of limitations supply “substantive” law in diversity suits, although state courts often apply the forum’s limitations period as a “procedural” bar to claims arising under another state’s law.⁶

A student who weighs the incentive in a Rule problem has run an inquiry from the wrong step. Hanna sends a Rule to the questions of coverage and validity.

Shady Grove and the Incentive

Shady Grove is instructive because the plurality did not pretend the incentive away. Under New York’s § 901(b), statutory penalties could not be sought in a class action in state court, while Rule 23 would require a federal court to allow them.⁸ The plurality wrote that “keeping the federal-court door open to class actions that cannot proceed in state court will produce forum shopping.”⁹ It then explained why that reality does not decide the case. Divergence from state law, with forum shopping as its consequence, is the inevitable (indeed, the intended) result of a uniform system of federal procedure, and Congress itself created the possibility that the same case may follow a different course in federal court than in state court.¹⁰ The reasoning is short. A uniform procedure applies the same way in every district whatever a neighboring state’s courts do, so any state whose procedure differs will have a gap between its courts and the federal courts. That gap produces an incentive to choose the federal forum, and an incentive of that kind cannot be a ground of invalidity without condemning the uniform system that created it.

The dissent treated the same incentive as decisive, and its route shows where the real disagreement lies. Because it perceived no unavoidable conflict between Rule 23 and § 901(b), it decided the case under the Erie inquiry: whether applying the state rule would so affect the litigants’ fortunes that failing to apply it would likely cause a plaintiff to choose federal court.¹¹ Under that inquiry the incentive was stark. The class relief sought was ten thousand times greater than the individual remedy available in state court, and the plurality itself acknowledged that forum shopping would result if a plaintiff need only file in federal court to seek a massive award that state law forbade.¹² All the Justices, in other words, agreed that the result would give plaintiffs a reason to prefer federal court.¹³ They differed about the stage at which that fact counts. For the plurality, a valid Rule on point ends the inquiry before the incentive is weighed. For the dissent, no Rule was on point, so the incentive decided the case.

Whether the incentive should count earlier, when a court asks whether the Rule really collides with the state rule, remains open. Hanna suggests that forum-shopping concerns come into play only when the competing federal directive is not a validly promulgated Rule. Yet after Shady Grove, commentators have asked whether the Court should give the problem more weight when deciding whether there is a “direct collision.”¹⁴ The case for keeping the incentive out of validity testing rests on three points. A Rule is tested once, as procedural or not, and if it passes it is valid once and for all, in any federal case, and immune to an as-applied challenge.¹⁵ Substantive and state interests still matter, but at the drafting stage, when the framers of broad-ranging Rules should consider them.¹⁶ And if a Rule later proves too intrusive on substantive or state rights, the rulemakers or Congress can rewrite it.¹⁷ On that view the remedy for an objectionable incentive lies in redrafting the Rule and not in testing it case by case.

The Semtek Tension

One decision seems to cut the other way. Semtek International Inc. v. Lockheed Martin Corp. concerned the “with prejudice” language of Rule 41. The Court read that language to prevent refiling only in the same court, with no preclusive effect in other courts.¹⁹ The Court’s explanation drew on both the Enabling Act and Erie. A broader reading, it suggested, would raise Enabling Act problems and would offend Erie’s federalism principle by encouraging forum shopping.²⁰

Read literally, that explanation treats the twin aims as an independent limit on how far a Federal Rule may reach, the very assumption Hanna called a more fundamental flaw in the defendant’s argument.²¹ It also strains against Hanna’s suggestion that forum-shopping concerns come into play only when the competing federal rule was not validly promulgated under the Enabling Act.²² Yet the Court did not hold Rule 41(b) invalid. It gave the Rule a very narrow reading, perhaps an implausibly narrow one.²³

The better view is that the forum-shopping passage is dictum, meaning reasoning the Court did not need in order to reach its result. Semtek appears to be a special case, driven by the Court’s worry that a more literal reading of Rule 41 would have given it effect beyond the permissible bounds of the Enabling Act.²⁴ Shady Grove points the same way. There the Court gave Rule 23 precedence over the New York statute because the Rule met the Enabling Act’s requirements, even though, as the dissent pointed out, the practical effect was to turn a $500 case into a $5 million one.²⁵ The plurality there held that a Federal Rule governing procedure is valid whether or not it induces forum shopping.²⁶ The two cases also use forum shopping differently. In Semtek it supported a narrow reading of a Rule’s scope under the shadow of an Enabling Act worry. In Shady Grove it was offered to defeat a Rule that the Court read to cover the point and found valid. Semtek still shows that concerns of this kind can push the Court toward a narrow reading of a Rule, but absent concerns like those in Walker and Semtek, the Court seems likely to keep giving federal procedural laws a fairly broad interpretation.²⁷

On an exam, forum shopping belongs in the Erie analysis when no Rule or statute is on point, and it should not be used to attack a valid Rule. Semtek can be noted as unresolved dictum that sits uneasily with Hanna, but it should not be presented as a test.