Amicus Brief — Moody v. Meyers

Ave i; -4

[CORRECTED COPY] / See re:

No. 82-2091 oa :

3,

IN THE :

Supreme Court of the United States

OCTOBER TERM, 1982

SHEARN Moopy, JR.,

Petitioner,

¥.

DAVID C. MEYERS, et al.,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Fifth Circuit

BRIEF AMICI CURIAE OF THE STATE OF MISSOURI

AND THE STATE OF OKLAHOMA

JOHN ASHCROFT * MICHAEL C. TURPEN **

Attorney General of the Attorney General of the

State of Missouri State of Oklahoma

Post Office Box 899 JOHN D. ROTHMAN

Jefferson City, Missouri 65102 Assistant Attorney General of

(314) 751-3321 the State of Oklahoma

State Capitol Building, Room 112

Oklahoma City, Oklahoma 73105

(405) 521-3921

** Counsel of record,

August 19, 1983 State of Oklahoma

* Counsel of record,

State of Missouri

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON. D.C. 20001

TABLE OF CONTENTS

Page

Re ee RCE ii

BORED GE GUE CGING riccitcciccsinicreessccrcnnsteniecmncisnreciaianins 1

IN GE CO ID ccc ssictevercevvceretenniecconiniiins deintihiasbeadale 1

nn Gr eI 1s. .cteupeedineponiansineianoensaiedl 2

I. The holding of the court below was clearly con-

trary to the applicable state law ................--.......--- 3

II. The unconstitutionality of the court’s decision

to fashion a rule contrary to state law was not

mitigated by the court’s failure to announce its

rejection of the state law —...0...............cccceeseeeeeeeeee 6

III. Without Supreme Court review and reversal of

decisions creating federal common law, other

limitations on the federal judicial power will

CR CEES ES PaO Toe BALI OE 12

Se PETIIUN sisccissdtinencrreieitinemnenainnsamtenneinnnamnin 17

il

TABLE OF AUTHORITIES

Cases Page

Arkansas Louisiana Gas Co. v. Texarkana, 97 F.2d

Ff | Rn noe rs 14

Baltimore & Ohio R.R. v. Baugh, 149 U.S. 368

CIE ccvedscecscensdekestitaatdemlensoubemateie nates 10, 11

Black & White Taxicab Co. v. Brown & Yellow

Taxicab Co., 276 U.S. 518 (1928) ...............0........ 9,10

Bolton v. Coats, 514 S.W.2d 482 (Tex. Civ. App.

ER ihe reagan -ioaadete sie aaaieetaie unanaad ane tomaa 5

Clearfield Trust Co. v. United States, 318 U.S. 363

PAINE <ocecccastescidiicessuatiesicicdctsieskainindensenaohcdianlaeaaamaae ena 9

Equitable Life Insurance Co. v. Halsey, 112 F.2d

SE CIID cvicsssisteewcrcunianssecsskibaceapecantaiddsialsaa as 14

Equitable Life Insurance Co. v. Halsey, 312 U.S.

S| | | ae cements sorerem WAP ARR Oe es 2 14

Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938).. 2, 6,8

F.E.R.C. v. Mississippi, 456 U.S. 742 (1982) .......... 11

Fitzgerald v. United States Lines, 374 U.S. 16

CDP. ccocunoniesdevaisnisabvcimccdinnideeaniaamenaaaaaanaes 9

Guaranty Trust Co. of New York v. York, 326 U.S.

DP. CID vedicovisdun:stesianekedantecdeemueesmenamiadianaeneten 8

Guardians Association v. Civil Service Commission

of the City of New York, 51 U.S.L.W. 5105 (No.

81-431, decided July 1, 1983) 0.00.0... cee 12, 13

Gutierrez v. Collins, 583 S.W.2d 312 (Tex. 1979).. 3

Huntsville v. Goodenrath, 68 So. 676 (Ala. 1915).... 5

Illinois v. Milwaukee, 406 U.S. 91 (1972) .............. 9

Kirby Lumber Co. v. Adams, 62 S.W.2d 366

CIID - seiessccsiscnssemstocnunmesonieciasaamin cua iain 5

Lochner v. New York, 198 U.S. 45 (1905) —..0.00...... 15

Milwaukee v. Illinois, 451 U.S. 304 (1981) ..00000....... 13

Parratt v. Taylor, 451 U.S. 527 (1981) .......0.000000..... 12, 15

Paul v. Davis, 424 U.S. 698 (1976) .......................... 13

Pennhurst State School v. Halderman, 451 U.S.

GE Cosiscattasehic cab pnidaocacesbesenadem ated 12

Railroad Commission v. Marathon Oil Co., 89

S.W.2d 517 (Tex. Civ. App. 1935) 2.000.000.2000... 5

Railroad Commission v. McKnight, 619 S.W.2d

SOG CHO, TOR: F. BINED. eicctintatensendeiicntadsnaeenieees 5

iii

TABLE OF AUTHORITIES—Continued

Page

Southern Pacific R.R. Co. v. Jensen, 244 U.S, 205

aA Piecorasereusseanen ren er mrcen nee Mri 9

State v. Brooks, 53 So. 2d 329 (Ala, 1951) ~............. 5

Swift v. Tyson, 16 Pet. (41 U.S.) 1 (1842) —.......... 9

Texarkana v. Arkansas Louisiana Gas Co., 306

Sn iain 14

Texas Industries, Inc. v. Radcliff Materials, Inc.,

ee ee 0 I i crieeeeeemnieoannan 9

Vandenmark v. Owens-Illinois Glass Co., 311 U.S.

al slrasamennenl 3, 7, 14

West v. American Telephone and Telegraph Co.,

I SU corceienioeinaiet 14

Statutes and Miscellaneous Authorities

i ensnemmieieiieniet 12

Alabama Code § 27-2-21 (1975) .2.............cccceeceeeeeeee 5

Alabama Code § 27-2-31(a) (1975) ...................2.-.-.- 4

Alabama Code § 27-2-32 (1975) .2.........22...:0-ceseeeeeeeees 5

Texas Ins. Code Ann. art. 1.15, § 4 (Vernon 1981).. 5

M. Horwitz, The Transformation of American Law

ASS SEER eae aetna ete 15

J. McClellan, Joseph Story and the American Con-

I i eeelieaadataeeaiad 10

C. Wright, Handbook on the Law of Federal Courts

al 2,15

Friendly, Jn Praise of Erie—And of the New Fed-

eral Common Law, 39 N.Y.U. L. Rev. 383

STRATE Ieee ee Me eee Res es 9

Kurland, Mr. Justice Frankfurter, the Supreme

Court and the Erie Doctrine in Diversity Cases,

ey ee ms I °C os cdot teemdibaincnieaniiiead 11

IN THE

Sipreme Court of the United States

OCTOBER TERM, 1982

No. 82-2091

SHEARN Moopy, JR.,

Petitioner,

v.

DAVID C. MEYERS, et al.,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Fifth Circuit

BRIEF AMICI CURIAE OF THE STATE OF MISSOURI

AND THE STATE OF OKLAHOMA

INTERESTS OF THE AMICI CURIAE

STATE OF MISSOURI AND

THE STATE OF OKLAHOMA

The States of Missouri and Oklahoma have a strong

interest in the integrity of the federal system ordained by

the United States Constitution, and particularly in pre-

venting federal courts from substituting themselves for

state lawmaking authorities in the exercise of lawmaking

power outside the scope of the powers which have been

delegated to the federal government by the Constitution,

and which Congress has chosen to exercise. The States of

Missouri and Oklahoma hope to persuade this Court to

review and reverse the holding of the court below in order

to reaffirm the constitutional limits on the powers of the

federal judiciary and the constitutional integrity of the

states as lawmaking bodies.

STATEMENT OF THE CASE

Amici hereby adopt by reference the Statement of the

Case contained in the Petition for Writ of Certiorari at

2-6.

2

SUMMARY OF ARGUMENT

The concept of federalism embodied in the United

States Constitution requires that the states retain not

only titular authority to make decisions on matters not

delegated to the central government, but also real power

to enforce such decisions. Accordingly, when a federal

court substitutes its own notions of sound policy for the

applicable positive law that has been enacted by a state

legislature or pronounced by a state court, the federal

court does more than violate a “technical doctrine of

procedure or jurisdiction.” Rather, the unwarranted cre-

ation of “general federal common law” strikes at “the

heart of the relations between the federal government and

the states... .” C. WRIGHT, HANDBOOK ON THE LAW

OF FEDERAL CourRTs § 55 at 255 (3d ed. 1976); see Erie

Railroad Co. v. Tompkins, 304 U.S. 64 (1938).

In this case the Court of Appeals did not simply err

in an attempt to apply state law. Rather, it made no

attempt to determine what state law provided on the

pivotal question in the case. The court brushed aside

specific contentions about the statute and decisional law

of Texas and Alabama with a single reference to an as-

serted general principle of law. This principle, however,

had been repeatedly rejected by the state courts and state

legislatures whose decisions the federal court was bound

to apply.

The only remedy for the creation of general common

law by a federal court in an area outside the authority

of the federal government is review and reversal by this

Court. In several recent decisions, this Court has re-

minded lower federal courts that not even the most

broadly worded of federal statutes and constitutional pro-

visions are to be construed so as to transform federal

courts into courts of general common law. These admoni-

tions will prove to be pointless if federal judges are free

to reach whatever results they desire, without fear of

Supreme Court review, simply by resorting to the rubric

of “interpretation” of state rather than federal law. This

3

Court should therefore grant certiorari in this case in

order to make it clear that Erie requires a sincere and

thorough effort to discern and apply state law in pendent

and diversity cases, even where the positive law of the

state contravenes general principles in which the federal

judge strongly believes.

IL The holding of the court below was clearly contrary

to the applicable state law.

The Court of Appeals held that “there was only one

wrong complained of and proved: the manipulation of

the life interest leading to fatal undercapitalized acquisi-

tion.” Pet. App. 27 (emphasis supplied). This “manipu-

lation” was held to consist in the petitioner’s requesting

the Alabama Insurance Commissioner to revalue a life

interest owned by the corporation, and his subsequent

actions as an officer and director of the corporation in

undertaking acquisitions “based on an artificial surplus

created by the $14,403,200 revaluation of the life inter-

est.” Pet. App. 21. Petitioner contended in the proceeding

below, however, that under the applicable law’ the In-

1The Court of Appeals seems to have assumed that Texas sub-

stantive law applied to most issues in the case. Acknowledging

that it was required to follow Texas conflict of laws principles,

Opinion at 1458, the court did not in fact inquire into the con-

flict of law rule that Texas would have applied, but simply applied

Texas law (except on the decisive issue in the case, where it neither

cited any state law nor alluded to the absence of state authorities—

see text at pages 2-5, infra). In fact, the opinion in Gutierrez v.

Collins, 583 S.W.2d 312 (Tex. 1979), suggests that a Texas state

court would have applied Alabama substantive law. Gutierrez was

decided while the appeal in this case was pending, but it should have

been followed by the Court of Appeals. See Vandenmark v. Owens-

Illinois Glass Co., 311 U.S. 588 (1941). The Court’s failure to

apply Alabama law would only be relevant if the substantive law of

‘'exas was different from that of Alabama. In fact, had the Court

of Appeals consulted either Texas or Alabama law on the question

whether a state administrative decision can be collaterally attacked

in a private suit for damages, it would have been forced to decide

for petitioner rather than for respondents. See text as pages 2-5,

infra.

+

surance Commissioner’s ruling on the value of the life

interest was not subject to collateral attack in an action

for damages. If petitioner had prevailed on this point—

i.e., if the courts below had regarded themselves as bound

by the administrative ruling that the life interest was

worth $14 million—then petitioner could not have been

held “grossly negligent” for acting in accordance with

the Commissioners’ finding and not with some other and

perhaps better evaluation of what the life interest was

worth.’

In rejecting petitioner’s argument against collateral

attack on the Commissioner’s ruling, the Court of Appeals

cited no authority and only the following analysis:

This contention is spurious. An insurance company

may not delegate responsibility for valuation of its

assets to a state agency, and the mere fact that an

insurance commissioner accepts a company’s asset

valuation does not immunize the company from li-

ability arising from that valuation.

Pet. App. 22 n.11. This rule, on which the whole case

turned, is directly contrary to the rule that would have

been applied if the case had been tried in a state court.

The acts of the Alabama Insurance Commissioner are

expressly made “quasi-judicial” by statute. Ala. Code

§ 27-2-31(a) (1975). The Commissioner’s statutory duty

2 The court below also stated that the Commissioner “might”

have been “swayed by considerations of friendship and obligation

in approving the increased valuation of the life interest,” Pet. App.

8 n.4, and that during an earlier proceeding than the one on which

petitioner’s liability was based, petitioner has “failed to disclose his

belief that the trust interest was intended to be non-transferable.”

Pet. App. 26. Neither of these statements, however, was any part of

the court’s holding, since neither was found to have contributed

to “the one wrong complained of and proved.” Pet. App. 27. If the

court below had regarded itself as bound by the Commissioner’s

finding that the life interest was worth $14 million, neither of these

allegations could have created liability on the part of the petitioner,

since all damage and all liability in the case were found to have

resulted from the life interest being worth less than the Commis-

sioner had found it to be worth.

5

includes a duty to make an independent appraisal of the

value of the corporation’s reserve assets. Jd. § 27-2-21.

This appraisal was made in writing after a hearing at

which documentary and testimonial evidence was ad-

duced. Pet. App. 7-8; DX 6. The statute provides an

exclusive method for direct attack on rulings of the

Commissioner, which must be brought in the circuit court

of Montgomery County, Alabama. Ala. Code § 27-2-32

(1975). Similarly, in Texas (the forum state in the pro-

ceedings below, whose law the Court of Appeals applied

on other questions and presumably would have applied

to this question had it designed to apply state law at all),

a direct attack on any “rule, regulation, order, decision

or finding” of the State Board of Insurance is subject to

review by suit filed in the state district court in Travis

County, Texas, “and not elsewhere.” Tex. Ins. Code Ann.

art. 1.15, §4 (Vernon 1981). Collateral attacks on

agency determinations in private suits for damages are

forbidden. Railroad Commission v. McKnight, 619 S.W.2d

255 (Tex. Civ. App. 1981); Bolton v. Coats, 514 S.W.2d

482 (Tex. Civ. App. 1974); Railroad Commission v.

Marathon Oil Co., 89 S.W.2d 517 (Tex. Civ. App. 1935) ;

Kirby Lumber Co. v. Adams, 62 S.W.2d 366 (1933).

Accord, State v. Brooks, 53 So. 2d 329 (Ala. 1951);

Huntsville v. Goodenrath, 68 So. 676 (Ala. 1915). This

rule flows from the quasi-judicial nature of administra-

tive agency determinations and from the need for cer-

tainty in business transactions; it does not depend on the

soundness of the business judgment, or even on the “good

faith,” of parties who have treated the administrative

finding as though it were true rather than false. Thus, for

example, an allegation that a defendant in an action for

damages procured an administrative finding by making

false statements to the tribunal was insufficient to allow

the plaintiff to controvert the finding. Bolton v. Coats,

supra, 514 S.W.2d at 487. These holdings are incompatible

with the rule fashioned by the Court of Appeals in this

case to the effect that a state may not “delegate” respon-

sibility for evaluating its assets to a state agency, since

6

the sole effect of this ‘“non-delegation doctrine’ was to

allow the evaluation to be controverted in a collateral

action for damages.

II. The unconstitutionality of the court’s decision to

fashion a rule contrary to state law was not mitigated

by the court’s failure to announce its rejection of the

state law.

Since Erie Railroal Company v. Tompkins, 304 U.S.

64 (1938), this Court has recognized that when a federal

court substitutes rules of its own choosing for the statute

or decisional law of a State whose sovereignty includes

the power to make the law, the court violates the

Constitution.

The decision of the court below to create “federal com-

mon law” rather than to follow the applicable state law

was obfuscated by the court’s failure to identify the

source of the rule on which it resolved the case. While the

court did not attempt to show that its “non-delegation”

rule was derived from, or even consistent with, the law

of Texas or Alabama, it also refrained from announcing

that it was applying or creating federal common law.

This does not change the nature of the decision. If the

Court of Appeals had dealt thoroughly and candidly with

the Texas and Alabama statutes and decisions, and then

rejected them as “spurious” because they conflicted with

a general overarching rule of law to the effect that com-

panies may not “delegate” fact-finding responsibility to

state agencies, there would have been no doubt of the

court’s violation of the Constitution as construed by the

Court in Erie. Surely there can be no constitutional dif-

ference between a candid disavowal of applicable state

authorities and a rejection sub silentio of the same au-

thorities for the same purpose and to the same effect.

In a sense, federal courts create general federal com-

mon law whenever they make incorrect guesses about how

state supreme courts would decide the questions of state

law with which they are presented. See, e.g., Vanden-

7

mark v. Owens-Illinois Glass Co., 311 U.S. 588 (1941).

It would be neither possible nor desirable, however, for

this Court to grant certiorari in order to consider every

allegation that a federal court had simply misconstrued

state law. What distinguishes this case—what makes it

at least as destructive of the constitutional principle of

federalism as a candid usurpation of state lawmaking

power would have been—is that the court below made no

attempt to apply state law to the question on which the

case turned. If there had been no state statutes or deci-

sions to be found, moreover, the court’s failure to allude

to its duty to apply state law would be no more than evi-

dence of an unhealthy tendency to forget the role of the

federal courts within the federal system; but in this case

the court ignored state statutes and decisions that clearly

contradicted its holding. Finally, in this case the way in

which the court contrived to ignore state law—by reject-

ing a litigant’s references to the enacted and decisional

law of a state as “spurious” on the ground that they con-

flict with a general statement apparently derived from

the court’s apprehension of “the” law—is the very mode

of judicial decisionmaking that Erie forbade.

When these three factors are present in a diversity or

pendent jurisdiction * case—failure to cite state law or

to allude to the absence of state authorities, a decision

that clearly contravenes state law, and an apparent res-

olution of the state law question by reference to an as-

serted general principle of law—the decision partakes of

all the evils that are characteristic of “federal general

common law,” whether or not the decision describes itself

as a federal common law decision. Decisions such as the

one rendered by the court below meet all the criteria by

3 The court below did not find it necessary to determine whether

its authority to decide state law questions was based on diversity

jurisdiction or on pendent jurisdiction. In either case a federal

court’s obligation is to follow the decisions of the state courts.

8

which impermissible federai common lawmaking is com-

monly characterized:

1) When different rules are applied in state and fed-

eral courts respectively—regardless of whether the fed-

eral courts admit they are applying different rules, and

assuming only the “[p]Jersistence of state courts in their

own opinions on questions of common law,” Erie, supra,

304 U.S. at 74—there will be a lack of uniformity in the

law and a corresponding uncertainty surrounding com-

mercial transactions.

2) Similarly, although diversity jurisdiction “was con-

ferred in order to prevent apprehended discrimination in

state courts against those not citizens of the State,” ap-

plication of different substantive rules in federal courts

introduces “grave discrimination by non-citizens against

citizens” by making “rights enjoyed under the unwritten

‘general law’ vary according to whether enforcement [is]

sought in the state or federal court,” and giving the

power of selecting the forum (and hence the law) to the

non-citizen. Jd. at 74-75.

3) Whether an error results from a wilful rejection of

the court’s duty to apply state law or from a sub silentio

rejection of state law in favor of an asserted general

principle has no bearing on whether the error is “out-

come-determinative.” See Guaranty Trust Company of

New York v. York, 326 U.S. 99 (1945). In this case the

result reached by the courts below could not have been

reached if the courts had followed the Texas and Alabama

rule against collateral attacks on administrative rulings

in private suits for damages, rather than the contradic-

tory general principle formulated by the Courts of Ap-

peals. See pages 2-5, supra.

4) Nor is this issue within one of the “narrow areas”

in which the federal courts are “free to develop a common

law” absent a delegation from Congress pursuant to a

constitutional grant of federal power. These areas include

9

“those concerned with the rights and obligations of the

United States, interstate and international disputes im-

plicating the conflicting rights of States or our relations

with foreign nations, and admiralty cases.” Texas Indus-

tries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 641

(1981) (footnotes omitted). See generally Clearfield

Trust Co. v. United States, 318 U.S. 363 (1943) ; Illinois

v. Milwaukee, 406 U.S. 91 (1972); Fitzgerald v. United

States Lines, 374 U.S. 16 (1963). One danger flowing

from an attitude among federal judges that they ought

to formulate general principles of law to govern disputes

between private parties outside these specialized areas is

that the federal courts will then pay insufficient attention

to the development of guidelines to determine when it is

appropriate to apply or create federal common law. See

Friendly, In Praise of Erie—And of the New Federal

Common Law, 39 N.Y.U. L. Rev. 383 (1964). This dan-

ger is aggravated rather than alleviated when a federal

court creates federal common law without acknowledging

(and perhaps even without quite knowing) that it is

doing so.

5) The outstanding characteristic of the general federal

common law prior to Erie was the theoretical premise

from which it proceeded: that there is “a transcendental

body of law outside of any particular state but obligatory

within it unless and until changed by statute.” Black and

White Taxicab Company v. Brown and Yellow Taxicab

Company, 276 U.S. 518, 533 (1928) (Holmes, J., dissent-

ing). In Swift v. Tyson, 16 Pet. (41 U.S.) 1 (1842), for

instance, the Court found it “necessary ... to express

our own opinion of the true result of the commercial law

upon the question now before us,” notwithstanding the

New York decisions that had already addressed the ques-

tion. Jd. at 19. The more firmly the judges became con-

vinced that the commercial Jaw was an objectively ascer-

tainable set of principles (like “a brooding ominpresence

in the sky,” Southern Pacific Railroad Co. v. Jensen, 244

U.S. 205, 222 (1917) (Holmes, J.)), however, the more

10

likely it became that the “general law” would amount to

“little less than what the judge advancing the doctrine

thinks at the time should be the general law.” Baltimore

& Ohio R.R. v. Baugh, 149 U.S. 368, 401 (1893) (Field,

J., dissenting). This theoretical premise and this style of

decisionmaking were also the premise and the style of the

court below. The Court of Appeals did not find it neces-

sary to inquire into state law on the question because it

felt sure that petitioner’s argument was “spurious.” Pet.

App. 22 n.11. The argument was “spurious” because it

conflicted with a general principle in which the court

obviously believed quite strongly. See id. This approach to

decisionmaking is precisely the approach taken in Swift

and declared unconstitutional in Erie. The error of the

court below was to base the petitioner’s liability on a

principle imported from a source other than (and, as it

happens, hostile to) the statute and decisional law of

Texas and Alabama. “But there is no such body of law.

The fallacy and illusion . . . consist in supposing that

there is this outside thing to be found.” Black and White

Taxicab Co., supra, 276 U.S. at 533 (Holmes, J.,

dissenting) .*

* Justice Story’s belief that it was proper for federal judges to

create general common law was closely related to his belief that the

common law ought to embody the natural law. See J. MCCLELLAN,

JOSEPH STORY AND THE AMERICAN CONSTITUTION 180-83 (1971).

Conversely, Justice Holmes’s distaste for the “brooding omnipres-

ence” of federal common law was related to his rejection of the idea

of natural law. See id. at ix-x. Limitations on the lawmaking au-

thority of federal courts need not, however, be based on a rejection

of the idea of natural law, since a belief in natural law does not

entail the superior capacity or authority of federal judges as transla-

tors of natural law into positive law. Similarly, one who rejects the

idea of objective right and wrong might logically choose to be a

“federal judicial positivist” on the ground that he finds the rules

generally made by federal judges more useful than, or otherwise

preferable to, rules made by other lawgivers. For the purpose of

constitutional analysis, it is enough to observe that judicial decisions

are a kind of positive law, and that the Constitution reserves law-

making power to state governments wherever such power has not

been delegated to the federal government.

11

6) Application of any law other than that made by the

state having the sovereign power to make the law injures

not only one or more litigants, but also the state itself.

“Indeed, having the power to make decisions and to set

policy is what gives the State its sovereign nature.”

F.E.R.C. v. Mississippi, 456 U.S. 742, 761 (1982). There-

fore, “[n]othing can be more disturbing and irritating

to the states than an attempted enforcement upon its

people of a supposed unwritten law ... to which they

have never assented and which has no existence except in

the brain of the Federal judges in their conceptions of

what the law of the states should be on the subject con-

sidered. Baltimore & Ohio R.R. v. Baugh, 149 U.S. 368,

403 (1893) (Field, J., dissenting). Indeed, “sophisticated

students of government understand that these problems

involve fundamental questions of power, and that the ex-

istence of democracy depends in no small part upon the

proper allocation of such authority.” Kurland, Mr. Jus-

tice Frankfurter, the Supreme Court and the Erie Doc-

trine in Diversity Cases, 67 Yale L.J. 187, 187 (1957).

Although a candid refusal by a federal court to apply

state law might be worse than a more casual approach

such as that taken by the court below in that the former

would add insult to injury, it is also possible that a bold

usurpation is less dangerous than a quiet one in that it

would be more likely to alert Congress to the need for

remedial action. Concerning “fundamental questions of

power” on which “the existence of democracy depends,”

some of the most dangerous errors in history have been

made by those who proceeded quietly and with good inten-

tions. Unless mens rea is to be introduced as a necessary

element in establishing the unconstitutionality of federal

lawmaking outside the delegated powers of the federal

government, a federal court’s negligent failure to apply

applicable state law cannot be distinguished from a de-

liberate refusal to apply the same law under otherwise

identical circumstances.

12

III. Without Supreme Court review and reversal of deci-

sions creating general federal common law, other

limitations on the federal judicial power will prove

illusory.

Casual disregard of state authorities in the course of

“interpreting” state law is one of several ways in which

federal courts can exceed their constitutional authority

to make law. Several recent decisions of this Court have

had the effect of closing “loopholes” through which fed-

eral judges might have reached desired results at the ex-

pense of state sovereignty cr the separation of powers.

Unless the lower federal courts take seriously their re-

sponsibility to apply state law in diversity and pendent

jurisdiction cases, however, other limitations on the fed-

eral judicial power will have no practical effect.

One way in which the federal courts have made law is

by the “interpretation” of broadly-worded federal statutes

so as to confer unlimited discretion on federal judges to

make rules of law. In Parrat v. Taylor, 451 U.S. 527

(1981), this Court reversed a lower federal court’s in-

corporation of the principles that “no loss should go with-

out redress” into 42 U.S.C. § 1983. Significantly, the

Court cited Erie and observed that there is “no general

common law applicable to federal courts” as a basis for

deciding cases on the basis of “a single general principle,

however just that principle may be in the abstract.” Jd.

at 531-32.

Similarly, where the United States has to some extent

limited the decisionmaking authority of state govern-

ments by attaching conditions to federal grants, lower

federal courts have sometimes seemed to regard these

conditions as occasions for the wholesale extension into

new areas of federal judicial power to define individual

and governmental rights and responsibilities. This Court,

however, has rejected such a construction. Pennhurst

State School v. Halderman, 451 U.S. 1 (1981). See also

Guardians Association v. Civil Service Commission of the

13

City of New York, 51 U.S.L.W. 5105, 5109 (No. 81-431,

decided July 1, 1983): “Since the private cause of action

under Title VI [of the Civil Rights of 1964] is one im-

plied by the judiciary rather than expressly created by

Congress, we should . . . take care in defining the limits

of this cause of action and the remedies available there-

under... .”

Even where state sovereignty is perhaps at its lowest

ebb—where the Fourteenth Amendment to the Constitu-

tion requires the federal courts to review allegations that

the state has deprived an individual of life, liberty, or

property without due process of law—this Court has re-

jected attempts by lower federal courts to ignore the

specific purposes of the Fourteenth Amendment and to

construe it as “a font of tort law to be superimposed

upon whatever systems may already be administered by

the states.” Paul v. Davis, 424 U.S. 6938, 701 (1976).

Yet another way in which the federal courts might

tend to become courts of general common law is by ex-

panding the narrow scope of legitimate federal common

lawmaking power. This Court has, however, recognized

that it has a special responsibility to review such at-

tempts at expansion. Indeed, “[s]ince the states are

represented in Congress but not in the federal courts,

the very concerns about displacing state law which coun-

sel against finding pre-emption of state law in the absence

of clear intent actually suggest a willingness to find con-

gressional displacement of federal common law” by sub-

sequent federal legislation. Milwaukee v. Illinois, 451 U.S.

304, 317 n.9 (1981).

In each of the types of cases discussed above, this Court

reminded lower federal courts that the limitations on

their lawmaking power are substantive as well as formal.

It is not enough for a federal judge simply to make a

ritual bow toward some source of authority—whether it

be the Fourteenth Amendment, a federal] statute, or the

legitimate federal common law—and then to reach what-

ever result he desires in the case before him. When the

14

judge treats state law as little more than a base that

must be touched prior to going about the business of

judicial lawmaking, he achieves the same result as he

would have done by using any of these devices the Court

has so recently forbidden, and with even less constitu-

tional justification.®

5 During the first few years after the decision in Erie, this Court

reviewed a number of lower federal court decisions to determine

whether they had correctly applied state law in diversity cases.

Most of these were cases in which the lower federal courts had

announced that they would follow some state authorities but not

others. See, e.g., West v. American Telephone and Telegraph Co.,

311 U.S. 223 (1940) (federal courts must follow state intermediate

appellate court decisions unless convinced that the state’s highest

court would decide otherwise) ; Vandenmark v. Owens-Illinois Glass

Co., 311 U.S. 538 (1941) (federal Court of Appeals may not dis-

regard state court decisions rendered after the date of the federal

district court judgment being appealed). Two of the lower federal

court decisions reviewed and reversed by this Court, however,

were strikingly similar to the decision of the Court of Appeals in

this case. In Texarkana v. Arkansas Louisiana Gas Co., 306 U.S.

188 (1939), and Equitable Life Insurance Co. v. Halsey, 312 U.S.

410 (1941), the courts of appeals had acknowledged their respon-

sibility to apply state law but had in fact decided the principal

issues without referring to applicable state court decisions. See

Arkansas Louisiana Gas Co. v. Texarkana, 97 F.2d 5 (5th Cir.

1938) ; Equitable Life Insurance Co. v. Halsey, 112 F.2d 302 (1940).

In the Texarkana case the Court of Appeals declared, “We think

the appellant has the right of it throughout,” because it was ‘“‘per-

fectly plain” that a certain contract clause was “completely invalid

and unenforceable as an attempt to abdicate and delegate” a legal

duty. 97 F.2d at 9. The Supreme Court, however, granted certiorari

“on account of asserted conflict with the decisions of the state

courts,” 306 U.S. at 191, and reversed. 306 U.S. at 201-02. Similarly,

the Court of Appeals in the Equitable Life case declared, “We see

no reason why appellant should be held accountable,” since a certain

clause in a contract “constituted a valid defense.” The Supreme

Court of lowa, however, had concluded otherwise, and so the United

States Supreme Court reversed. 312 U.S. at 423-26. The effect of

this Court’s decisions in Terarkana and Equitable Life was to re-

mind the lower federal courts that they have an affirmative duty

to apply state law, not merely to say they are applying it. The

decision of the Court of Appeals in this case suggests that some

federal judges need to be reminded again.

15

The decision of the court below, like the lower federal

court decision that this Court reversed in Pariatt, was

a result of the same phenomenon that gave rise to Swift

v. Tyson: excessive self-confidence on the part of some

federal judges who feel they can provide “juster justice”

than that which is embodied in the laws that state legis-

lators and state judges have made. Cf. C. WRIGHT, supra,

$56 at 262. The “general commercial law” whose dis-

covery was announced in Swift has been attributed to

a desire on the part of certain federal judges “to estab-

lish a maier procommercial legal doctrine that had con-

sistently been opposed at the state level” and eventually

“to take [commercial] disputes out of what might other-

wise be an uncongenia!l anticommercial environment

often found in state courts.” M. Horwitz, THE TRANS-

FORMATION OF AMERICAN LAW 1780-1860 at 223, 252

(1977). Evie came at a time when this Court was re-

versing vet another wave of federal “judicial activism,”

in which judges had enforced their own social and eco-

nomic philosophies under the pretext of finding the com-

mon law or internreting the Constitution. See, e.q., Loch-

ney v. New York, 198 U.S. 45 (1905). Recent decisions

of this Court, such as Parratt v. Taylor, supra, are de-

signed to curtail the latest resurgence of federal judicial

activism—of which the decision of the court below is an

outstanding example. Although the economic and social

philosophy heing imposed by some judges today, unlike

the prevailing judicial philosophy during the Swift and

Lochner eras, can hardly be called “procommercial,” the

threat to constitutional! federalism and to government by

the consent of the governed is identical.

This case is a perfect illustration of the point that this

Court must police the frontiers of all doctrines limiting

federal judicial lawmaking power in order for any of

these limitations to be meaningful. If the court below had

construed federal securities laws to impose personal lia-

bility on an insurance company officer for treating a cor-

Ee A A a A

16

porate asset as though it were worth what the state

insurance commissioner said it was worth, the holding

would have been quite controversial and would have

merited review by this Court. If, on the other hand, a

state court had been presented with the question of how

the state law ought to be construed, it would have

reached the opposite result. See pages 2-5, supra, and au-

thorities cited therein. It would be ironic indeed if the

decision below should escape review because it “merely”

involves a federal court misconstruing state law. In

which direction a lower federal court bows prior to creat-

ing federal common law-—whether to the Fourteenth

Amendment, to § 1983, to “the general commercial law,”

or to a “diversity jurisprudence” in which state statutes

and state court opinions are overridden by axioms—

makes no practical difference. None of these disguises

should enable an unconstitutional exercise of federal

judicial lawmaking to evade Supreme Court review.

CONCLUSION

For the reasons hereinabove stated, this Court should

grant the petition for certiorari.

Respectfully submitted,

JOHN ASHCROFT * MICHAEL C. TURPEN **

Attorney General of the Attorney General of the

State of Missouri State of Oklahoma

Post Office Box 899 JOHN D. ROTHMAN

Jefferson City, Missouri 65102 Assistant Attorney General of

(314) 751-3321 the State of Oklahoma

* oll wane State Capitol Building, Room 112

— pe — Oklahoma City, Oklahoma 73105

(405) 521-3921

** Counsel of record,

August 19, 1983 State of Oklahoma

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