Cohen v. Beneficial Industrial Loan Corporation Beneficial Industrial Loan Corporation/Dissent Rutledge

by Wiley Blount Rutledge

United States Supreme Court

337 U.S. 541

Cohen  v.  Beneficial Industrial Loan Corporation Beneficial Industrial Loan Corporation

 Argued: April 18, 1949. --- Decided: June 20, 1949

Mr. Justice RUTLEDGE, dissenting.

I am in accord with the dissenting opinion of Mr. Justice DOUGLAS in this case. I also agree with the dissenting views of Mr. Justice Jackson in Woods v. Interstate Realty Co., 337 U.S. 535, 69 S.Ct. 1235. And I have noted my dissent in Ragan v. Merchants Transfer & Warehouse Co., 337 U.S. 530, 69 S.Ct. 1233.

Without undertaking to discuss each case in detail, I think the three decisions taken together demonstrate the extreme extent to which the Court is going in submitting the control of diversity litigation in the federal courts to the states rather than to Congress, where it properly belongs. This is done in the guise of applying the rule of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487. But in my opinion it was never the purpose of that decision to put such matters as those involved here outside the power of Congress to regulate and to confer that authority exclusively upon the states.

What is being applied is a gloss on the Erie rule, not the rule itself. That case held that federal courts in diversity cases must apply state law, decisional as well as statutory, in determining matters of substantive law, in particular and apart from procedural limitations upon its assertion-whether a cause of action exists. I accept that view generally and insofar as it involves a wise rule of administration for the federal courts, though I have grave doubt that it has any solid constitutional foundation.

But the Erie case made no ruling that in so deciding diversity cases a federal court is 'merely another court of the state in which it sits,' and hence that in every situation in which the doors of state courts are closed to a suitor, so must be also those of the federal courts. Not only is this not true when the state bar is raised by a purely procedural obstacle. There is sound historical reason for believing that one of the purposes of the diversity clause was to afford a federal court remedy when, for at least some reasons of state policy, none would be available in the state courts. It is the gloss which has been put upon the Erie ruling by later decisions, e.g., Guaranty Trust Co. of New York v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079, 160 A.L.R. 1231, which in my opinion is being applied to extend the Erie ruling far beyond its original purpose or intent and, in my judgment, with consequences and implications seriously impairing Congress' power, within its proper sphere of action, to control this type of litigation in the federal courts.

The accepted dichotomy is the familiar 'procedural-substantive' one. This of course is a subject of endless discussion, which hardly needs to be repeated here. Suffice it to say that actually in many situations procedure and substance are so interwoven that rational separation becomes well-nigh impossible. But, even so, this fact cannot dispense with the necessity of making a distinction. For, as the matter stands it is Congress which has the power to govern the procedure of the federal courts in diversity cases, and the states which have that power over matters clearly substantive in nature. Judges therefore cannot escape making the division. And they must make it where the two constituent elements are Siamese twins as well as where they are not twins or even blood brothers. The real question is not whether the separation shall be made, but how it shall be made, whether mechanically by reference to whether the state courts' doors are open or closed, or by a consideration of the policies which close them and their relation to accommodating the policy of the Erie rule with Congress' power to govern the incidents of litigation in diversity suits.

It is in these close cases, this borderland area, that I think we are going too far. It is one thing to decide that Pennsylvania does or does not create a cause of action in tort for injuries inflicted by specified conduct and to have that determination govern the outcome of a diversity suit in Pennsylvania or New York. ^[1] It is another, in my view, to require a bond for costs or for payment of the opposing party's expenses and attorney's fees in the event the claimant is unsuccessful. Whether or not the latter is conceived as creating a new substantive right, it is too close to controlling the incidents of the litigation rather than its outcome to be identified with the former. It is a matter which in my opinion lies within Congress' control for diversity cases, not one for state control or to be governed by the fact that the state shuts the doors of its courts unless the state requirements concerning such incidents of litigation are complied with.

In my view Rule 23 of the Federal Rules of Civil Procedure, derived from the former Equity Rules and now having the sanction of Congress, is valid and governs in the Cohen case. If, however, the State of New Jersey has the power to govern federal diversity suits within its borders as to all matters having a substantive tinge or aspect, then it may be questioned whether, in the event of conflict with some local policy, a federal court sitting, in that state could give effect to the Rule's requirement that the complaint aver 'that the plaintiff was a shareholder at the time of the transaction of which he complains or that his share thereafter devolved on him by operation of law . . ..' For in any strict and abstract sense that provision would seem to be as much a 'substantive' one as the New Jersey requirements for bond, etc And, if so, then it would seem highly doubtful, on any automatic or mechanical application of the substantive-procedural dichotomy, that either Congress or this Court could create such a limitation on diversity litigation, since as a substantive matter this would be for the states to control. See 3 Moore, Federal Practice (2d Ed.) 3493-3506.

For myself I have no doubt of the validity of Rule 23 or of the power of Congress to enact such a rule, even though it has a substantive aspect. Notwithstanding that aspect, the rule is too closely related to procedural and other matters affecting litigation in the federal courts for me to conceive of its invalidity. So also in the present cases I think the state regulations, though each may be regarded as having a substantive aspect, are too closely related to the modes and methods of conducting litigation in the federal courts to be capable of displacing Congress' power or regulation in those respects or the federal courts' power to hear and determine the respective controversies.

Accordingly I would reverse the judgments in the Cohen and Ragan cases and affirm that in the Woods case.

Notes

1. It may be noted that the disposition of the local law problem apparently presented in Erie was not consistent, either here or on remand, with the current view that a federal district court is required to treat a diversity case exactly as would a state court of the state in which the district court is sitting: The Erie case arose out of an alleged Pennsylvania tort, and this Court stated that the court of appeals had erred when it 'declined to decide the issue of state law,' 304 U.S. at page 80, 58 S.Ct. at page 823, 82 L.Ed. 1188, 114 A.L.R. 1487, i.e., 'the Pennsylvania law.' Id. But the Erie case was initiated by Tompkins, 'a citizen of Pennsylvania * * * in the federal court for Southern New York, which had jurisdiction because the company is a corporation of that State.' 304 U.S. at page 69, 58 S.Ct. at page 818 (emphasis added). Accordingly, as Erie is now construed, the issue on remand should have been what law a New York state court would have applied to the Pennsylvania tort. But the sole issue determined on remand was the applicable Pennsylvania law, without mention of the probable attitude of the New York courts. Tompkins v. Erie R. Co., 2 Cir., 98 F.2d 49. It was not until after Justice Brandeis had retired that this Court held that federal district courts were required to follow local conflict of laws doctrine in the resolution of diversity cases. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477.