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Ronald Reagan Presidential Library
Digital Library Collections
This is a PDF of a folder from our textual collections.
Collection: Roberts, John G.: Files
Folder Title: JGR/Enrolled Bills - May 1984
(1 of 2)
Box: 21
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To see all Ronald Reagan Presidential Library inventories visit:
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THE WHITE HOUSE
WASHINGTON
May 1, 1984
MEMORANDUM FOR FRED F. FIELDING
FROM:
JOHN G. ROBERTS
SUBJECT:
H.R. 3689, H.R. 3690, H.R. 3691,
H.R. 3692, H.R. 3693 and Draft
Justice Report on the Preceding
Bills Related to Restricting or
Abolishing Federal Diversity
Jurisdiction
OMB has asked for our views by May 4 on a proposed report
from the Department of Justice concerning H.R. 3689-
H.R. 3693, bills to restrict or abolish Federal diversity
jurisdiction. The report -- a 25-page letter from Assistant
Attorney General McConnell -- supports the complete abolition
approach of H.R. 3689, and expresses support for the restriction
of diversity jurisdiction in the other bills if it is not
possible to secure complete abolition. The report supports
the creation of a mass tort action, proposed in H.R. 3690,
to ensure a Federal forum for airplane crashes and the like.
Opponents of abolition of diversity frequently cite such
cases as ones that should be in Federal court but would not
be were diversity abolished; providing a Federal forum for
such cases removes one of the leading arguments against
abolition. The report supports an increase in the juris-
dictional amount in diversity cases, and abstention in
certain diversity cases, the approach of H.R. 3691. The
report also supports the general notion behind H.R. 3692,
which would require arbitration in diversity cases. The
cases could be tried de novo after arbitration, but parties
would be penalized if they insisted on this right and won a
substantially less favorable result in court than that
awarded them in arbitration. Finally, the report supports
H.R. 3693, which would correct an historic anomaly in
American law by eliminating the right of in-state plaintiffs
to bring diversity suits in Federal court. The historic
justification for diversity jurisdiction -- the potential
hostility of state courts to out-of-state litigants -- is of
course inapplicable when the person seeking a Federal forum
is a resident of the state in question.
The proposed report goes on to suggest other diversity-
related reforms not raised by the pending bills, such as
discretionary appellate review, requiring a particularized
showing of bias in the state forum (similar to the required
- 2 -
showing in change of venue cases), and expanding the concept
of a corporation's citizenship so as to defeat diversity in
a greater number of cases. The report also suggests (pp.
22-23) charging the party filing a diversity case a "user's
fee" to cover the cost of having the Federal judicial system
adjudicate the claim, including a portion of the judge's and
support personnels' salaries, cost of maintaining the
courtroom, overhead, etc. The report notes that there may
be problems with such an approach, but generally suggests
the idea is worth pursuing. In my view the idea is ludicrous.
The additional administrative burden of calculating the
entire cost of hearing any particular diversity case would
far outweigh any gain in reduction of such cases filed. I
recommend noting in our memorandum to OMB that we are not
persuaded that this idea even merits consideration.
I have no other objections. The Administration is clearly
on record as supporting abolition or restriction of diversity
jurisdiction. There is a caseload crisis in the lower
Federal courts, and it is almost unconscionable to permit
diversity cases to crowd out cases that truly belong in
Federal court.
Attachment
THE WHITE HOUSE
WASHINGTON
May 1, 1984
MEMORANDUM FOR BRANDEN BLUM
LEGISLATIVE ATTORNEY
OFFICE OF MANAGEMENT AND BUDGET
FROM:
FRED F. FIELDING Orig. signed by FFF
COUNSEL TO THE PRESIDENT
SUBJECT:
H.R. 3689, H.R. 3690, H.R. 3691,
H.R. 3692, H.R. 3693 and Draft
Justice Report on the Preceding
Bills Related to Restricting or
Abolishing Federal Diversity
Jurisdiction
Counsel's Office has reviewed the above-referenced proposed
Department of Justice report. I am not persuaded that the
idea of "charging a user's fee,' suggested at pages 22-23 of
the proposed report, merits sufficient consideration to be
included in the report. I cannot envision how such a system
would work, and it seems probable that the administrative
and other costs associated with calculating and assessing a
fair "user's fee" would easily outweigh any benefit in
reduction of diversity cases. Including such a poor idea in
the report inevitably detracts from the other good suggestions.
FFF:JGR:aea 5/1/84
CC: FFFielding/JGRoberts/Subj/Chron
THE WHITE HOUSE
WASHINGTON
May 1, 1984
MEMORANDUM FOR BRANDEN BLUM
LEGISLATIVE ATTORNEY
OFFICE OF MANAGEMENT AND BUDGET
FROM:
FRED F. FIELDING
COUNSEL TO THE PRESIDENT
SUBJECT:
H.R. 3689, H.R. 3690, H.R. 3691,
H.R. 3692, H.R. 3693 and Draft
Justice Report on the Preceding
Bills Related to Restricting or
Abolishing Federal Diversity
Jurisdiction
Counsel's Office has reviewed the above-referenced proposed
Department of Justice report. I am not persuaded that the
idea of "charging a user's fee, " suggested at pages 22-23 of
the proposed report, merits sufficient consideration to be
included in the report. I cannot envision how such a system
would work, and it seems probable that the administrative
and other costs associated with calculating and assessing a
fair "user's fee" would easily outweigh any benefit in
reduction of diversity cases. Including such a poor idea in
the report inevitably detracts from the other good suggestions.
FFF:JGR:aea 5/1/84
CC: FFFielding/JGRoberts/Subj/Chron
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
SPECIAL
LEGISLATIVE REFERRAL MEMORANDUM
224137 cu
TO:
LEGISLATIVE LIAISON OFFICER
Department of Agriculture
Department of the Interior
Central Intelligence Agency
Department of Labor
Department of Comerce
Department of State
Department of Defense
Department of Transportation
Department of Education
Department of the Treasury
Department of Energy
Veterans Administration
Environmental Protection Agency
Office of Personnel Management
Federal Emergency Management Agency
United States Postal Service
General Services Administration
Small Business Administration
Administrative Office of the U.S. Courts
National Aeronautics and Space
Department of Health and Human Services
Administration
Department of Housing and Urban Development
SUBJECT: H.R. 3689, H.R. 3690, H.R. 3691, H.R. 3692, H.R. 3693 and draft DOJ
report on the preceding bills related to restricting or abolishing
Federal diversity jurisdiction
The Office of Management and Budget requests the views of your
agency on the above subject before advising on its relationship
to the program of the President, in accordance with OMB Circular
A-19.
Please provide us with your views no later than
Friday, May 4, 1984.
Direct your questions to Branden Blum (395-3802), the legislative
attorney in this office.
James GOW C.
Assistant Director for
Legislative Reference
Enclosure
CC: K. Wilson
M. Uhlmann
R. Veeder
P. Szervo
F. Fielding
M. Horowitz
L. Verstandig
U.S. Department of Justice
Office of Legislative Affairs
Office of the Assistant Attorney General
Washington. D.C. 20530
Honorable Robert W. Kastenmeier
Chairman
Subcommittee on Courts, Civil Liberties,
and the Administration of Justice
Committee on the Judiciary
House of Representatives
Washington, D. C. 20515
Dear Chairman Kastenmeier:
This is in response to your request for the views of the
Department of Justice on H.R. 3689, 3690, 3691, 3692, and 3693,
bills relating to the diversity jurisdiction of the federal
courts. H.R. 3689 proposes the complete abolition of federal
jurisdiction based on diversity of state citizenship, except for
statutory interpleader; the remaining bills set out intermediate
reform options. The Department of Justice supports the enactment
of the complete abolition proposal of H.R. 3689 without quali-
fication. We would also support the enactment of the general
types of reforms proposed in the other bills as preferable
alternatives to the current system.
Our views concerning the grounds for abolishing diversity
jurisdiction -- or limiting it as far as possible if complete
abolition cannot be achieved -- have been stated in previous
submissions to this Subcommittee. 1/ This report will accord-
ingly be concerned, for the most part, with an analysis of the
design and probable effects of the various reform options. A
final section sets out some additional options that merit
consideration by the Subcommittee.
1/
See Diversity of Citizenship Jurisdiction - 1982: Hearing on
H.R. 6691 Before the Subcomm. on Courts, Civil Liberties and
the Administration of Justice of the House Comm. on the
Judiciary, 97th Cong., 2d Sess. 7-16 (1982) (testimony and
supplementary submission of Assistant Attorney General
Jonathan C. Rose) [hereafter cited as "1982 House Diversity
Jurisdiction Hearing"].
- 2 -
I.
H.R. 3689 -- The "Complete Abolition" Proposal
H.R. 3689 would generally abolish the diversity jurisdiction
of the federal courts. The grounds for this reform have been
discussed in our earlier statements and in the voluminous hearings
on diversity jurisdiction reform that have been held in both
Houses of Congress over the past six years. 21
H.R. 3689, like earlier "complete abolition" proposals,
would retain statutory interpleader. In contrast to the general
diversity jurisdiction of the federal courts, the interpleader
action serves a valid purpose. It permits a dispositive adjudi-
cation of liability with respect to a fund where multiple
liability might otherwise result from inconsistent verdicts in
proceedings in different states. 3/
H.R. 3689 differs from earlier "complete abolition" bills in
providing that its elimination of diversity jurisdiction is to
lapse after five years. This provision is not intrinsically
desirable, since it risks a repetition a few years from now of
2/
See id. ; Diversity of Citizenship Jurisdiction/Magistrates
Reform - 1979: Hearings on H.R. 1046 and H.R. 2202 Before
the Subcomm. on Courts, Civil Liberties and the
Administration of Justice of the House Comm. on the
Judiciary, 96th Cong., 1st Sess. (1979) [hereafter cited as
"1979 House Diversity Jurisdiction Hearings"];
Jurisdictional Amendments Act of 1979, S. 679: Hearings
Before the Senate Comm. on the Judiciary, 96th Cong., 1st
Sess. (1979) [hereafter cited as "1979 Senate Diversity
Jurisdiction Hearings"] Federal Diversity of Citizenship
Jurisdiction: Hearings on S. 2094, S. 2389 and H.R. 9622
Before the Subcomm. on Improvements in Judicial Machinery of
the Senate Comm. on the Judiciary, 95th Cong., 2d Sess.
(1978) [hereafter cited as "1978 Senate Diversity
Jurisdiction Hearings"} Diversity of Citizenship
Jurisdiction/Magistrates Reform: Hearings Before the
Subcomm. on Courts, Civil Liberties and the Administration
of Justice of the House Comm. on the Judiciary, 95th Cong.,
1st Sess. (1977) [hereafter cited as "1977 House Diversity
Jurisdiction Hearings"].
3/
Outside of interpleader cases, diversity jurisdiction does
not generally promote the efficient and consistent
adjudication of related cases; it can easily have the
opposite effect. Specifically, cases which would have been
handled as consolidated proceedings in state court may be
split into separate state and federal proceedings when some
parties choose to litigate in federal court and other
parties must stay in state court because they lack the
requisite diversity of citizenship.
- 3 -
the battle over diversity reform. It would be justified only as
a pragmatic concession, if such a concession is needed to gain
acceptance of the proposal.
II. H.R. 3690 -- Abolition of General Diversity Jurisdiction
And Creation of a Mass Tort Action
H.R. 3690 would abolish the general diversity jurisdiction
of the federal courts in the same manner as H.R. 3689 and would
provide a federal forum for certain multiparty or mass tort cases
on the basis of minimum diversity.
We have previously stated support for the creation of this
type of multiparty action. 4/ As an isolated measure, this
proposal might be criticized as adding to the workload of a
judicial system that is already heavily overloaded. However,
this objection has little force against the adoption of the
proposal as an element in a broader program of diversity juris-
diction reduction. The savings from H.R. 3690's general
abolition of diversity jurisdiction, in particular, would vastly
exceed any additional work resulting from the creation of a
properly designed multiparty action. 5/
The proposed action would provide a more efficient means of
adjudicating mass disaster or mass tort cases, such as those
arising from airplane crashes. The existing diversity juris-
diction of the federal courts does not ensure that a consolidated
forum will be available in such cases, since the multiplicity of
parties makes it likely that some of the parties will lack the
required diversity of citizenship. 6/ The proposed multiparty
action based on minimum diversity avoids this problem. 7/ As a
4/ See 1982 House Diversity Jurisdiction Hearing, supra note 1,
at 11-13, 15-16.
5/
Diversity cases account for about one quarter of all civil
filings, 40% of all civil trials, and 60% of all civil jury
trials in the federal district courts.
6/
See, e.g., Air Disaster Litigation: Hearings on H.R. 1027
Before the Subcomm. on Administrative Law and Governmental
Relations of the House Comm. on the Judiciary, 97th Cong.,
1st & 2d Sess. 43-44 (1982) (110 unresolved cases arising
from plane crash remained in state court on account of lack
of diversity) [hereafter cited as "Air Disaster Litigation
Hearings"].
7/
The proposal of H.R. 3690 also avoids the limitation of the
general authority of the Panel on Multidistrict Litigation
to consolidation of proceedings for pre-trial purposes. The
(Footnote Continued)
- 4 -
practical matter, the creation of this action offers an advantage
to some potential litigants that may help offset resistance to
diversity reform.
The formulation of the multiparty action contained in
H.R. 3690 was initially proposed by the Department of Justice in
1979. 8/ It is generally well designed to achieve its purposes.
A federal forum would be available on the basis of minimum
diversity 9/ where at least twenty-five people have each incurred
injury to their persons or property exceeding $10,000 as the
result of a "single event, transaction, occurrence, or course of
conduct. 10/ Once such an action had been commenced in federal
(Footnote Continued)
court to which cases are transferred for consolidated
pre-trial proceedings may, as a practical matter, sometimes
retain them for trial as well, but this possibility is
limited by venue rules. See 1979 House Diversity
Jurisdiction Hearings, supra note 2, at 161.
/ See id. at 158-62.
9/ Both the original version of the proposal and H.R. 3690 add
some limited requirements to the minimum diversity standard,
so as to exclude cases of a "purely local" nature. See id.
at 160. The original proposal limited the action to cases
in which (i) minimum diversity between adverse parties
exists and in addition a plaintiff and some other injured
party are citizens of different states, or (ii) a party is a
state citizen and an adverse party is a foreign state or a
citizen of a foreign state. This bill adds a third clause
covering cases in which minimum diversity between adverse
parties exists and in addition at least two defendants
reside in different states. In the formulation of this new
clause it would be preferable to use the notion of
"citizenship" instead of "residence," since these concepts
are not technically the same and the notion of "residence"
might be unclear as applied to corporations.
10/ The bill differs slightly from the original version of the
multiparty action proposed by the Department of Justice, see
id. at 158, in requiring a "good faith" allegation
concerning these jurisdictional conditions. This is
apparently meant to convey that the good faith-legal
certainty test that is normally applied to jurisdictional
amount claims, see note 27 and accompanying test infra,
would also apply in the proposed multiparty action.
However, this test is not indicated by explicit language in
other jurisdictional amount provisions; the term "good
faith" is not a fully satisfactory formulation since the
(Footnote Continued)
- 5 -
court, other injured parties could intervene as additional
plaintiffs, and the defendant could remove to federal court all
related cases brought against it in state court.
The Panel on Multidistrict Litigation would be authorized to
transfer all of the actions to a single district court (the
"transferee court") for consolidated pre-trial proceedings and a
consolidated trial on the question of liability. Actions would
be remanded to their district courts of origin for separate
trials on the question of damages, unless the equities of the
case favored having the transferee court make the damage determi-
nations as well. The transferee court would not be bound by
normal choice of law rules, but would apply the same substantive
law in all actions.
While we generally approve of the design of the proposed
action, we have comments on a few points which merit further
consideration by the Subcommittee. These are generally directed
at minimizing the need for litigation on questions of interpre-
tation; ensuring that the proposed action has a predictable
scope; and ensuring that it operates efficiently:
The Definition of Injury. The action would be predicated on
"personal injury or injury to the property" of at least twenty-
five persons. It would be desirable to clarify in the proposal's
legislative history that "personal injury" means physical harm to
natural persons (including death) and that "injury to property"
means physical damage to, or destruction of, tangible property.
This interpretation is consistent with the natural under-
standing of the language of the proposal and with the intent
suggested by its legislative history. 11/ It would foreclose
interpretive litigation over the adequacy of intangible "injury"
as a basis for jurisdiction under the action, such as the
financial loss or harm involved in fraud or breach of contract
cases. In terms of policy, there is little justification for
extending the scope of the action to such cases. The commercial
(Footnote Continued)
normal standard allows dismissal where it is legally certain
that the jurisdictional amount cannot be recovered, even in
the absence of subjective bad faith; and the language of the
bill appears to apply its "good faith" requirement to the
allegation concerning the number of persons injured rather
than to the allegation concerning the value of their
injuries. It might be preferable to address this question
by stating in legislative history that the normal standards
for assessing jurisdictional claims would apply, rather than
through a formulation incorporated in the language of the
bill.
11/ See note 12 infra.
- 6 -
torts that most commonly result in financial harm to a large
number of parties in a number of states -- such as antitrust
violations and securities frauds -- can already be sued on in
federal court on other jurisdictional bases.
Qualifying Events and Occurrences. The proposal refers to
injury resulting from a "single event, transaction, occurrence,
or course of conduct." It is clear both from the language of the
proposal and from its legislative history that the action is
meant to apply to mass injury cases arising from discrete,
spatially and temporally limited incidents, such as an airplane
crash, a train derailment, or a hotel fire. 12/ The term "course
of conduct," however, creates an ambiguity as to what other
classes of cases may also fall within the scope of the action:
Example: In the years following World War II,
employees at a shipyard are exposed to asbestos in the
course of their work. After a lapse of decades, some
of the former employees of the shipyard become sick,
which they believe to be the result of their exposure
to asbestos. They attempt to bring federal multiparty
actions, arguing that the employer's failure to take
adequate precautions against asbestos exposure ovèr a
period of years constituted "a single
course of
conduct."
=
The number of straightforward mass disaster cases,
exemplified by major commercial aviation accidents, is limited;
12/ In testimony before the Senate Judiciary Committee in 1979,
the Department of Justice stated that the point of a
multiparty action of the sort proposed in H.R. 3690 would be
to address "mass tort" cases. It was stated that "[t]he
most common example is the commercial airline crash;
however, there are other types of mass injury cases that
would also be affected such as bus or train accidents." See
1979 Senate Diversity Jurisdiction Hearings, supra note 2,
at 31-32.
Similarly, in testimony before this Subcommittee explaining
the possible desirability of creating a special action for
"mass tort" cases, the Department stated that " [a]nother
possible situation in which the diversity jurisdiction could
serve some genuinely useful purpose today is in so-called
'mass tort' situations. A typical example is an airline
crash where dozens or even 200 or 300 persons are injured or
killed
" See 1979 House Diversity Jurisdiction Hearings,
supra note 2, at 148. The Department's statement
accompanying the initial proposal of the multiparty action
contained in H.R. 3690 consistently referred to injuries
resulting from a single "incident." See id. at 160.
- 7 -
admitting such cases to the federal courts on a "minimum
diversity" basis should result in no excessive burdens for the
courts if it is accompanied by the elimination of the general
diversity jurisdiction. However, the effect of including a
vaguely defined class of mass injury cases arising from more
diffuse patterns of actions or occurrences is more difficult to
anticipate.
While it is dubious that such cases were meant to be within
the scope of the proposed multiparty action, under the current
formulation of the proposal a large potential exists for
litigation over how far the notion of "a single
course of
conduct" can be stretched. As a matter of policy, it is not
apparent that a federal judicial remedy designed primarily for
aviation disasters and other cases of a similar character would
be a suitable or adequate means of dealing with other types of
mass injury litigation. 13/
13/ Consider, for example, mass injury cases in which thousands
of suits may be commenced against the same defendant over a
period of years or decades. Mechanisms may be desired in
such cases -- such as permanent compensation funds -- which
ensure that earlier litigants do not deplete the assets of
the defendant, leaving little or nothing for plaintiffs who
discover their injuries and commence litigation at a later
time.
The multiparty action proposed in H.R. 3690 makes no
provision for the interests of parties who have not
commenced litigation at the time the consolidated proceeding
is concluded in the transferee court. This omission is not
a problem for aviation cases and other mass disaster cases
in which the injury is immediately apparent and litigation
is generally commenced promptly after the incident. It
would have very different implications, however, in
connection with asbestos litigation and other litigation of
a similar character. See generally The Manville Bankruptcy
and the Northern Pipeline Decision: Hearing Before the
Subcomm. on Courts of the Senate Comm. on the Judiciary,
97th Cong., 2d Sess. (1982) ; Court Improvements Act of 1983:
Hearings on S. 645 Before the Subcomm. on Courts of the
Senate Comm. on the Judiciary, 98th Cong., 1st Sess. 183-84
(1983) ; Rotbart, Manville Corporation Faces Increasing
Opposition to Bankruptcy Filing, Wall St. J., Jan. 31, 1984,
at 1.
- 8 -
The simplest response to these problems would be to delete
the terms "course of conduct" and "transaction" 14/ from the
bill. This would preserve the action for all cases that are
clearly within its intended scope -- mass injury actions
resulting from a single event or occurrence -- but would
foreclose litigation over its possible application in broader
areas. Defining the particular action proposed in H.R. 3690 in
this manner would not, of course, prevent the Subcommittee from
examining the problems of other types of mass injury litigation
as a separate undertaking from diversity jurisdiction reform.
Transferable Actions. The bill's provision regarding
transfer and consolidation, 28 U.S.C. § 1407 (i), refers to
transferred actions in which jurisdiction is based on the
proposed multiparty action, 28 U.S.C. $ 1367. This should be
broadened to refer to all actions based on an event or occurrence
which provides the jurisdictional basis for a multiparty action.
If some suits arising from a mass disaster are brought in federal
court under proposed § 1367, while other suits arising from the
same incident are brought under other jurisdictional bases, such
as the general alienage jurisdiction, 15/ it should still be
possible to handle all of the actions under the consolidated
procedure proposed in the bill. The bill's current language is
not adequate for this purpose.
14/ While the term "course of conduct" carries the greater
expansive potential, deletion of the term "transaction" also
seems advisable, unless some specific class of cases within
the intended scope of the action can be described which
would be included if "transaction" were retained and
excluded if "transaction" were taken out. In general, it is
unclear what "transaction" adds to the unproblematic terms
"event" and "occurrence."
15/ H.R. 3690 would retain the general alienage jurisdiction
which is currently provided in 28 U.S.C. $1332 (a) (2). In a
suit qualifying as a multiparty action which involved
adverse parties who were American citizens and citizens of
foreign states respectively, there would apparently be the
option of proceeding under the general alienage jurisdiction
provision, or the proposed multiparty action, or both.
There are various other potentially overlapping grounds of
federal jurisdiction. For example, the sinking of a ship
that gives rise to a multiparty action may also give rise to
Jones Act suits, see 46 U.S.C. $688, to Death on the High
Seas Act suits, see 46 U.S.C. $$761-68, and to general
admiralty jurisdiction suits, see 28 U.S.C. $1333. Aviation
disasters often involve claims against the government under
the Federal Tort Claims Act. See Douglas, Air Disaster
(Footnote Continued)
- 9 -
Choice of Law. Under currently popular choice of law
theories, the law of different jurisdictions may be applied to
different parties in the same case on account of differences in
their domiciles or other factors. The choice of law may also
differ for the various elements in a single party's case. For
example, the law of different jurisdictions may be applied in
connection with the applicable standard of care and other rules
of liability, presumptions and burdens of proof, rules of
contributory or comparative negligence, the amounts and types of
compensatory damages that may be awarded, the availability of
punitive damages, rules governing contribution among joint
tortfeasors, and the limitation period applicable to the action.
This fragmentation of the substantive law applied in a case
has had unfortunate consequences in mass disaster cases of the
sort addressed by H.R. 3690, which involve dozens of parties from
a number of states. Specific problems that have arisen include
choice of law litigation of staggering complexity 16/; com-
plications in the adjudication of the merits of the case result-
ing from the need to apply different bodies of law to different
parties 17/ and different issues 18/; delay in settlements
resulting from uncertainty over which state's law will be applied
19/; the impetus to forum-shopping created by the perception that
a particular forum will apply a more or less favorable body of
law 20/; and the perceived unfairness of drastically different
recoveries 21/ that may result when different bodies of law are
applied to different parties in the same case. 22/
(Footnote Continued)
Litigation Without Diversity, 45 J. Air L. & Comm. 411,
438-39 (1980)
16/ See, e.g., In re Air Crash Disaster Near Chicago, 644 F. 2d
594 (7th Cir. 1981).
17/ See Air Disaster Litigation Hearings, supra note 6, at 38.
18/ See id. at 77.
19/ See id. at 104-05.
20/ See id. at 106-07.
21/ See id. at 40, 78, 102.
22/ It is not apparent what there is to show for all the time
and effort that is expended as a result of choice of law
problems in these cases. It is a debatable proposition that
the tort law of one state is better or more just than the
law of some other state that might be applied, and in any
(Footnote Continued)
- 10 -
H.R. 3690 provides that the transferee court would not be
bound by normal choice of law rules, but would apply the same
substantive law 23/ in all actions. This would eliminate the
application of the law of different jurisdictions to different
parties. With appropriate clarification, it would also go far
toward eliminating the other problems related to choice of law in
mass tort cases. Specifically, it should be made clear that the
application of the same substantive law to all actions includes a
requirement that the same law generally be applied to all aspects
and elements of each party's action, and that the transferee
court's choice of law would carry over to the district courts of
origin in remands for separate trials on the question of damages.
This approach would not avoid the need for a choice of law by the
transferee court, but only one choice would be required.
Following this choice, the same body of law would be applied
uniformly in all subsequent proceedings. 24/
(Footnote Continued)
event few courts employ choice of law rules that make the
applicable law depend on such value judgments. There must
be some limit on the costs justified by determinations that
have nothing to do with the merits of the case and further
no interest of justice.
23/ "Substantive law" should be understood in the normal
choice-of-law sense. It does not include the choice-of-law
rules of the state and does not include matters that are
purely procedural, that is, the range of matters governed by
the Federal Rules of Civil Procedure and local rules of
court in the federal courts.
24/ The suggested principle of uniformity requires some limited
qualifications. If a claim or issue is governed by federal
law, the transferee court should, of course, apply the
pertinent federal law. For example, a multiparty action
arising from a train derailment might incorporate Federal
Employer's Liability Act (FELA) claims, see 45 U.S.C.
$$51-60, and a multiparty action arising from the sinking of
a ship might incorporate Jones Act claims, see 46 U.S.C.
$688.
Where necessary to avoid unfair surprise, the standards of
conduct provided by a state's law should be applied to
conduct which does not have a potential impact outside of
the state. For example, in a bus accident case, the
driver's negligence must obviously be reckoned in light of
the speed limit and other rules of the road of the place in
which he was driving, even if some other state's law is
generally applied in the case. See Reese, Depecage: A
Common Phenomenon in Choice of Law, 73 Colum. L. Rev. 58,
63-64 (1973). On the other hand, there would be no
unfairness in applying the law of the state chosen,
(Footnote Continued)
- 11 -
As an alternative to providing for the uniform application
of the law of a single, unspecified jurisdiction in all actions
-- the approach of the current formulation of the bill -- the
Subcormittee might consider the possibility of including an
explicit choice of law rule in the bill. The bill could, for
example, state a general rule that the substantive law of the
state in which the transferee court is located is to be
applied. 25/ This would provide uniformity and optimal
simplicity in the choice of law, and would utilize the body of
state law with which the judge of the transferee court is most
likely to be familiar. The Panel on Multidistrict Litigation
would be required, in any event, to make a decision concerning
the district in which the actions are to be consolidated. Many
(Footnote Continued)
whichever it might be, in reckoning the liability of a
manufacturer for a defective part incorporated into an
airplane which may be flown in other states.
It may also be desirable to state some qualification to
ensure that the normal operation of state workmen's
compensation systems -- and other state compulsory insurance
systems adopted as a replacement for litigation -- will not
be interfered with, where the state whose law is generally
applied in the case is not the state which administers the
applicable compensation system. Cf. 28 U.S.C. $ 1445 (c)
(civil action in state court arising under state's workmen's
compensation laws not removable to federal court).
While this question merits consideration by the Sub-
committee, it would appear that applying the same state's
law to all issues would rarely present any problem in
connection with the issues that are likely to pose
significant choice of law questions in mass tort cases. See
generally Air Disaster Litigation Hearings, supra note 7, at
75-78; Douglas, supra note 15, at 424 (1980) ; Craig &
Alexander, Wrongful Death in Aviation and the Admiralty:
Problems of Federalism, Tempests and Teapots, 37 J. Air. L.
& Comm. 3, 9-10 & nn. 24-28 (1971). The few warranted
exceptions could be articulated in the proposal's
legislative history.
25/ This approach would also be subject to the limited
qualifications noted in note 24 supra.
Cf. To Amend Title 28, United States Code, Federal Court
Procedures with Respect to Aviation Activity: Oversight
Hearing Before the Subcomm. on Administrative Law and
Governmental Relations of the House Comm. on the Judiciary,
98th Cong., 1st Sess. 77 (1983) (suggested stipulation of
jurisdiction-selecting rule for air disaster cases, such as
law of the place of departure).
- 12 -
of the considerations that support the transfer of actions to a
district in a particular state -- such as the occurrence of the
event on which the action is based in the state, or a concentration
of parties' domiciles in the state -- also tend to support the
application of the law of that state.
III. H.R. 3691 -- Increasing the Jurisdictional Amount and
Providing for Abstention in Certain Cases
H.R. 3691 incorporates two distinct reform proposals -- it
would raise the amount-in-controversy requirement from $10,000 to
$100,000, and it would provide for abstention in favor of state
proceedings under certain circumstances.
The Amount-in-Controversy Requirement. There is no reason
in principle why diversity cases involving larger liabilities
should not be heard in state court. However, raising the
jurisdictional amount is one means of reducing the volume of
diversity cases in the federal courts which may be less strongly
resisted than the complete abolition approach. H.R. 3691's
proposal for raising the amount to $100,000 would be a step in
the right direction. 26/
The Subcommittee should consider some additional measures
that would enhance the effectiveness of this type of reform:
The proposed figure of $100,000 may appear to set a high
threshold, but it does not actually do so, since plaintiffs'
attorneys commonly allege damages which are many times greater
than any recovery that can realistically be expected. Raising
the jurisdictional amount to $100,000 would not even have the
effect of excluding completely the class of cases in which
damages below $100,000 are now claimed, since in the presence of
a higher jurisdictional threshold some claims would be inflated
so as to exceed this threshold.
26/ The amount in controversy requirement for diversity cases
has been raised a number of times in the past. It was
initially set at $500 by the First Judiciary Act in 1789.
It was raised to $2,000 in 1887, to $3,000 in 1911, and to
$10,000 in 1958.
The Consumer Price Index tables prepared by the Bureau of
Labor Statistics of the Department of Labor show that 10,000
1958 dollars would be worth about $35,000 today as a result
of inflation. Raising the jurisdictional amount to $35,000
would accordingly do no more than conform 28 U.S.C. $1331 to
Congress's judgment concerning the proper amount at the time
of its enactment. The figure of $3,000 set in 1911 would
similarly be equivalent to about $32,500 today as a result
of inflation.
- 13 -
There is not, at present, any meaningful deterrent to this
type of inflation of claims. Dismissal of a facially adequate
claim for failure to satisfy the jurisdictional amount requirement
depends on a "legal certainty" test that is rarely satisfied. 27/
Section 1331 (b) of the Judicial Code provides that costs may be
denied to and imposed on the plaintiff if the jurisdictional
amount is not ultimately recovered, but this sanction has been
undermined by narrowing construction 28/ and "costs" in the
pertinent sense are limited to the narrow range of expenses
described in section 1920 of the Judicial Code.
The Subcommittee might consider two modifications of the
bill in response to these problems. First, the new jurisdictional
amount could be set at some higher figure than $100,000, such as
$250,000 or $1,000,000. Second, the sanction of section 1331 (b)
could be strengthened by making it mandatory whenever the jurisdic-
tional amount is not in fact recovered and by providing a definition
of "costs" that more fully captures the true cost to the government
of carrying out the adjudication of a diversity case. Broader
notions of "costs" of this type are discussed in section VI of
this report.
Abstention. H.R. 3691 also provides for staying a diversity
case in favor of a state adjudication if certain conditions are
satisfied. If a federal district court found that a state court
had jurisdiction of all claims and parties, and that the state
court could dispose of the claims in a timely manner, a two year
stay of the federal proceedings would be required. If the action
had not been concluded in the state court within the two-year
period, the district court would be permitted to resume the
federal proceeding, "if the interests of justice would be so
served," upon motion of any party.
As the sponsor's statement notes, this approach would be
"sensitive to the potential impact on State courts of a sudden
shift in cases from Federal to State courts" since "decisions
about when and whether to abstain would be made on the local
level." 29/ Since some of the opposition to diversity reform
reflects concerns over its effect on particular state systems,
approaches that permit local variation are worth exploring as the
basis for a possible compromise or accommodation. The specific
approach proposed in H.R. 3691 does, however, present some
problems or concerns.
27/ See Wright, Miller & Cooper, Federal Practice and Procedure:
Jurisdiction § 3702 (1976).
28/ See id. at 402.
29/ 129 Cong. Rec. H6023 (July 29, 1983).
- 14 -
The maximum stay of federal proceedings required by the bill
is two years; if the case had not been disposed of in state court
within that time, the federal proceeding could resume. The
disposition time for a case is not, however, independent of the
choices of the parties. In most cases it depends primarily on
how long it takes the parties to decide to settle and to reach
agreement on the terms of settlement. Even in tried cases the
duration of the litigation may depend to a large extent on the
decisions of the parties, including the inclination of a party to
resort to the familiar tactics of delay. The system proposed in
the bill would give a party who preferred a federal forum an
incentive to stall in the state proceedings so that the two-year
period would elapse and continuation of the federal proceeding
could be sought.
The proposal also presents the potential for arbitrary dis-
crepancies in the treatment of different cases and litigants.
Resumption of the federal proceeding after two years would not be
mandatory, but would depend on the district court's judgment that
taking back the case would serve the interests of justice. The
"interests of justice" language provides no real guidance, so the
decision to resume federal proceedings might largely depend, as a
practical matter, on how busy the responsible district judge is
with other cases, what his general attitude is towards diversity
cases, and how interesting he finds the particular case. A
similar potential for arbitrariness is presented by the bill's
conditioning of abstention on a district judge's judgment that
the action can be disposed of in state court "in a timely
manner."
The Subcommittee may wish to consider other approaches that
would permit variations responsive to local conditions but would
not involve comparable risks of manipulation or arbitrariness.
One possibility would be to authorize the judicial councils of
the circuits to adopt rules governing abstention in diversity
cases for the districts in their circuits, subject to a final
coordinating authority in the Judicial Conference. This would
permit the adoption of rules suited to the conditions in particu-
lar districts, and would provide coordinating mechanisms at both
the circuit level and the national level which would be capable
of addressing problems of forum-shopping and other difficulties
that might otherwise result from the application of different
abstention rules in different courts. 30/ The suggested approach
30/ In this respect the suggested approach avoids a problem with
the proposal of Professor David Shapiro that the individual
district courts be allowed to decide whether to retain
diversity jurisdiction. See Shapiro, Federal Diversity
Jurisdiction: A Survey and a Proposal, 91 Harv. L. Rev. 317,
339-55 (1977). It is also preferable in that it commits the
(Footnote Continued)
- 15 -
may be compared to that of Title III of H.R. 6872 of the 97th
Congress, which would permit the circuit councils to adopt
expediting or priority rules for civil cases, subject to a
coordinating authority in the Judicial Conference. 31/
IV. H.R. 3692 -- An Increase in the Jurisdictional Amount and
Compulsory Arbitration
H.R. 3692 would raise the amount-in-controversy requirement
for diversity cases to $100,000 and would require that diversity
cases be submitted to arbitration. The arbitration would be
carried out pursuant to rules issued by the Judicial Conference,
and would normally have to be completed within a year. Trial de
novo could be obtained following arbitration, but if the party
seeking a trial obtained a substantially less favorable result
from the judgment of the court than from the arbitration, that
party would be required to pay the opposing party the full
expense of the litigation, including attorney's fees. 32/
Our remarks concerning the proposal in H.R. 3691 to raise
the jurisdictional amount to $100,000 are equally applicable to
the corresponding proposal in this bill. The arbitration
proposal raises both questions of design and questions of basic
approach:
Questions of Design. The bill contains few specifications
concerning the arbitration system, leaving most matters to be
decided by the Judicial Conference. This approach makes the
actual operation of the system unpredictable to some extent. It
does, however, have the practical advantage of avoiding the need
to reach agreement on the details of the system at the legis-
lative stage. It would also make adjustments in the system in
light of experience with its operation easier to implement than
an approach in which significant changes would normally require
new legislation.
(Footnote Continued)
decision to bodies -- the circuit councils and the Judicial
Conference -- which include both circuit and district
judges. Since the intake of diversity cases at the district
court level has a large effect on the workload of the courts
of appeals, see note 54 infra, it is appropriate to have
circuit judges as well as district judges involved in such a
decision.
31/ See H.R. Rep. No. 824, 97th Cong., 2d Sess. 17 (1982).
32/ For purposes of valuating fees and expenses, the bill
incorporates by reference the provisions of the Equal Access
to Justice Act.
- 16 -
The bill provides that the limitation period applicable to
an action would generally be suspended while arbitration was
going on, but would start to run again when the arbitration was
completed or one year after the start of the arbitration, whichever
was earlier. This is problematic in a case in which the arbitration
continues beyond a year because of unnecessary delay by the
defendant. The limitation period would begin to run again
against the plaintiff, who might be forced to choose between
seeking trial de novo despite the fact that the arbitration was
still going on, or foregoing the possibility of trial de novo as
a result of the expiration of the limitation period.
An amendment is needed to ensure that a party would not be
prejudiced or forced to make an undesired choice on account of
delay attributable to the other party. The bill is obviously
correct in suspending the general limitation period applicable to
an action when it is submitted to arbitration, but restarting
such a period subsequently would not be necessary if the
arbitration rules specified suitable time limits for completing
arbitration and seeking trial de novo. 33/
The bill provides for fee-shifting against a party who seeks
trial de novo if the result of the trial is substantially less
favorable than the arbitral award. Under current law, there are
a broad variety of rules and statutes which require that other
remedies be pursued before a federal judicial forum is sought. 34/
33/ Restarting a statutory limitation period after a certain
time is not, in any event, an effective means of controlling
delay during arbitration or after it, since many years may
remain prior to the expiration of such a period. Delay by
either party could be effectively controlled through the
Judicial Conference's prescription of time limits for
completion of the various stages of arbitration and for
seeking trial de novo following the conclusion of
arbitration. The rules of the three federal district courts
that have utilized arbitration do include such time limits
and provide that the arbitral decision becomes final if
trial de novo is not sought within the time allowed. See
E.A. Lind & J.E. Shapard, Evaluation of Court-Annexed
Arbitration in Three Federal District Courts 99-118 (Federal
Judicial Center 1983).
34/ For example, under the Federal Tort Claims Act, a claim must
first be presented to the responsible agency. See 28 U.S.C.
$ 2675. Employment discrimination claims must be presented
to the EEOC for conciliation as provided in 42 U.S.C.
§ 2000e-5. State judicial remedies must be exhausted before
a state prisoner can apply for federal habeas corpus. See
28 U.S.C. § 2254 (b). Under the Civil Rights of
(Footnote Continued)
- 17 -
There are also many provisions that require a party who has
proceeded to litigation without necessity or adequate justifi-
cation to bear the resulting costs and expenses, where "neces-
sity" and "justification" are either the subject of an express
judicial determination or are defined in terms of the outcome of
the case. 35/ In the circumstances in which H.R. 3692 authorizes
fee-shifting -- a substantially less favorable verdict than the
arbitral award -- the outcome of the litigation demonstrates that
proceeding to trial was not necessary to secure the compensation
to which the party who sought a trial was entitled, since he
would actually have done better if he had accepted the arbitral
award. Requiring that party to bear the other party's expenses
in such circumstances is similar in principle to the existing
cost and fee-shifting provisions noted above.
While we see no problem in principle with this provision,
the conditioning of fee-shifting on a "substantially less favor-
able" outcome introduces an element of vagueness -- and an
(Footnote Continued)
Institutionalized Persons Act, suits by prisoners under 42
U.S.C. § 1983 may be stayed up to 90 days while the
plaintiff pursues state administrative remedies conforming
to federal standards. See 42 U.S.C. $ 1997e.
35/ For example, "costs," as defined in 28 U.S.C. § 1920, are
normally included in a judgment against a party in a federal
case. Costs may be shifted to the plaintiff in a diversity
case if he fails to recover the jurisdictional amount. See
28 U.S.C. § 1332 (b). Under 28 U.S.C. $ 1912 an appellate
court "may adjudge to the prevailing party just damages for
his delay, and single or double costs" when a judgment is
affirmed on appeal.
There are dozens of rules and statutes that authorize awards
of attorney's fees, either generally or under certain
conditions. For example, attorney's fees may be awarded in
any case against a party who proceeds in bad faith. The
Equal Access to Justice Act makes the government liable for
attorney's fees to prevailing parties in civil actions not
sounding in tort, unless the government's position is
substantially justified or certain other exceptions apply.
See 28 U.S.C. § 2412. Under 42 U.S.C. § 1983 and the other
statutes specified in 42 U.S.C. § 1988, a prevailing plain-
tiff is normally awarded attorney's fees and a prevailing
defendant is awarded attorney's fees if the suit was
frivolous, harassing, or vexatious. 42 U.S.C. $ 2000e-5 (k)
generally authorizes awards of attorney's fees to prevailing
parties in employment discrimination cases. 28 U.S.C.
§ 1875 (d) (2) authorizes fee-shifting in favor of a juror who
successfully sues an employer for discrimination based on
jury service.
- 18 -
attendant likelihood of interpretive litigation -- which serves
no obvious purpose. If the outcome of the trial is the same as
the arbitral award or less favorable than the arbitral award to
any degree, it appears that the recourse to litigation was
unnecessary to secure the compensation to which the party who
sought a trial was entitled, and the basic rationale for fee-
shifting is applicable. It would be preferable to provide for
fee-shifting whenever the outcome of the trial is not more
favorable than the arbitral award, rather than when it is
"substantially less favorable. 36/
Questions of Basic Approach. The more basic question for
the Subcommittee to consider is whether requiring arbitration for
all diversity cases in all parts of the country is too large a
step to take at one time. The available evidence concerning the
effects of arbitration consists of experiments in three federal
districts which have gone on for a number of years, 37/ and a
larger body of experience with arbitration in state systems. 38/
If a uniform arbitration requirement seems excessive at this
time, the Subcommittee may wish to consider a more flexible
approach under which the circuit councils would be given authority
to require arbitration of diversity cases in the districts in
their circuits, subject to a coordinating authority in the
Judicial Conference. 39/ This would enable the workload
resulting from diversity cases to be reduced in districts in
which arbitration proved to be productive, and would provide a
larger body of experience that would inform future legislative
decisions concerning the use of arbitration in federal cases.
V. H.R. 3693 -- Limiting Access to a Federal Forum to Out-of-
State Litigants
The final bill in the series is a classical intermediate
reform option which was proposed by the American Law
36/ Two federal district courts have used a "not more favorable"
standard in their arbitration rules concerning cost-shifting
as a sanction for unnecessary resort to trial. See E.A.
Lind & J.E. Shapard, supra note 33, at 111, 118.
37/ See generally id.; Levin, Court-Annexed Arbitration, 16 U.
Mich. J.L. Reform 537 (1983).
38/ See generally Levin, supra note 37.
39/ As noted earlier, see text accompanying note 31 supra, this
is similar to the approach proposed for civil priority rules
in H.R. 6872.
- 19 -
Institute 40/ and considered in the 95th Congress. 41/ It would
limit filing in federal court in diversity cases to out-of-state
litigants. In relation to the historical justification of
diversity jurisdiction as a means of protecting parties from bias
against persons from other states, there is no point in allowing
a federal forum to be sought by an in-state litigant. Such a
litigant could only benefit from local favoritism or partiality
in state proceedings.
In relation to current law, H.R. 3693 would simply equalize
the position of plaintiffs and defendants. Section 1441 (b) of
the Judicial Code now bars a defendant from removing a diversity
case to federal court if he is sued in his home state, but a
plaintiff is free to initiate a diversity suit in federal court
in his home state.
The reform of H.R. 3693 would not reduce the federal diver-
sity caseload by a proportion fully equal to the current propor-
tion of cases brought into federal court by in-state litigants.
Consider, for example, a case that under the current system would
be brought in federal court by an in-state plaintiff. Under the
reform the plaintiff would instead have to initiate the suit in
state court, if he wished to litigate in his own state. This
does not necessarily mean, however, that the litigation would be
carried out in state court, since the defendant would retain the
option of removing the case to federal court. Also, a plaintiff
with the capacity to litigate in more than one state might
deliberately choose to sue in some state other than his home
state in order to have access to a federal forum. 42/ It is,
nevertheless, reasonable to expect that the reduction in federal
40/ See American Law Institute, Study of the Division of
Jurisdiction Between State and Federal Courts 123-25 (1969).
41/ See generally 1978 Senate Diversity Jurisdiction Hearings,
supra note 2; 1977 House Diversity Jurisdiction Hearings,
supra note 2.
42/ This possibility would be limited, however, by the
difficulty of litigating out-of-state for many litigants,
and by venue restrictions. Under the amendment to 28 U.S.C.
§ 1391 (a) proposed in the bill, venue would be limited to
districts in which all plaintiffs or all defendants reside,
and districts containing a substantial part of the events
giving rise to the claim or a substantial part of the
property that is the subject of the action.
The potential for such forum-shopping could be further
limited by confining access to a federal forum to cases in
which at least one of the parties is litigating in his home
state, as proposed in the ensuing textual discussion.
- 20 -
diversity cases resulting from the enactment of H.R. 3693 would
be substantial.
We would recommend one improvement in the proposal -- the
bill should provide that the party adverse to the party seeking a
federal forum must be a citizen of the state in which the suit is
brought. In the absence of such a limitation, a federal forum
could be obtained where neither party was a citizen of the state
in which the suit was brought. 43/ There is no point in retaining
this option under the historical justification of diversity
jurisdiction noted above, 44/ since bias against persons from
other states in the forum state would not create a relative
advantage for either party in a case in which both parties were
not citizens of the forum state.
VI. Other Reform Options
A. Discretionary Appellate Review
The Subcommittee should consider a suggestion of Judge Carl
McGowan of the D.C. Circuit that appellate review in diversity
cases be made available only by leave of the courts of
appeals. 45/ Diversity cases now account for about 15% of
appeals from district court decisions; making appellate review
discretionary would plausibly eliminate much of the burden that
is currently imposed on the courts of appeals by these cases.
This reform would involve a departure from the normal rule
that a litigant is afforded one appeal as a matter of right
beyond the trial stage. However, the principal benefits provided
by appellate review in other contexts -- correction of legal
errors and maintenance of decisional uniformity -- are not
realized in the normal manner in diversity cases.
Federal diversity jurisdiction, to begin with, involves
transferring a class of state law cases from the state judges --
who have the greatest expertise and familiarity with this body of
law -- to federal district judges, whose exposure to state law is
more limited. The federal courts of appeals are further removed
from the state systems whose law they are required to apply in
diversity cases. A federal district judge often has had prior
43/ This was not allowed between 1789 and 1875. Changes in the
statutory language in 1875 abrogated the requirement that at
least one party must be a citizen of the forum state.
44/ I.e., protection from bias against persons from other
states.
45/ See McGowan, The View from an Inferior Court, 19 San Diego
L. Rev. 659, 666 (1982).
- 21 -
experience as a practitioner in the legal system of the state in
which his district is located. The federal appellate circuits,
however, generally extend over a number of states, so a circuit
judge hearing a diversity appeal will most likely have no first-
hand experience with the legal system of the state whose law is
being applied in the case.
Diversity appeals accordingly subject the decisions of
district judges, who have some degree of expertise on state law
matters, to review for error by circuit judges, who have
relatively little expertise in pertinent state law. Appellate
review of this character is less likely to provide significant
benefits in terms of increased accuracy than appellate review in
normal federal cases which depend on the interpretation and
application of federal law. 46/
Appellate review in diversity cases also does not operate in
the normal manner to produce decisional uniformity. The federal
courts of appeals have no authority to expound or develop state
law, but are limited to serving as "ventriloquist's dummies" for
the state courts in diversity cases; their decisions on state law
issues do not, of course, have any binding effect on the courts
of the states within the circuit. Moreover, a federal appellate
decision on a state law issue has only provisional value in
producing uniformity in the decisions of the district courts in
later diversity cases in the circuit, since it loses effect if
the state courts subsequently address the issue and reach a
different conclusion. 47/
Hence, appellate review in federal diversity cases serves
the normal functions of appellate review, at best, to a limited
degree. It is dubious that the slight benefits that may result
from making such review available as a matter of right justify
the costs and burdens that result to the federal courts of
46/ In other words, if an appellate panel reverses a district
court judgment on federal law grounds, it is probable that
the appellate panel is correct and the district court was
mistaken. When an appellate panel reverses a district court
judgment on state law grounds in a diversity case, however,
it may be equally probable or more probable that the
appellate panel is mistaken and the district judge was
correct. If this is so, then appellate review of state law
questions in diversity cases produces no net gain in terms
of error correction, or may actually be counterproductive.
47/ See American Institute of Chemical Engineers V. Reber-Friel
Co., 682 F.2d 382, 392 (2d Cir. 1982) (Feinberg, C.J.,
concurring).
- 22 -
appeals. For diversity cases that incidentally present signifi-
cant questions of federal law or procedure, discretionary review
by the courts of appeals should be an adequate recourse. 48/
B. Charging a User's Fee
Federal diversity jurisdiction has remained in existence
because many members of the trial bar and certain of their
clients prefer maintaining a choice of forums in diversity cases.
Gratifying this preference consumes a large part of the total
resources of the federal judicial system. This misallocation of
federal resources could be corrected by charging diversity
litigants who seek a federal forum the costs to the federal
government of carrying out the resulting adjudications. This
would preserve a federal forum in diversity cases for litigants
who considered such a forum valuable enough to warrant paying for
it, but would end the commitment of federal resources to a
function which the states are fully competent to perform.
Costs can now be charged to litigants in diversity cases
and other cases in federal court, but the expenses characterized
as "costs" are a small fraction of the true expense of adjudica-
tions to the federal government. They do not include, for
example, the portion of the salary of the judge and judicial
support personnel allocated to work on a case, or the costs of
maintaining courtroom facilities and other elements of overhead.
A fuller measure of costs would be required in implementing this
approach.
One possibility would be to determine on a case-by-case
basis how much carrying out an adjudication had cost the govern-
ment, and to charge that amount to the party who had filed in
federal court. The determinations involved would be similar in
many respects to those required in making awards of attorney's
fees. While the example of attorney's fees awards suggests that
this approach would not be impossible, it also suggests that it
could be burdensome and time-consuming. A case-by-case deter-
mination would also increase record-keeping burdens, since
48/ Under this proposal it would not, of course, be necessary
for each judge of a court of appeals to pass on an
application for discretionary review. The courts of appeals
would be free to adopt the more efficient procedure of
delegating the screening function for discretionary review
to a smaller number of judges, just as the function of
deciding cases on the merits is now routinely delegated to
three-judge panels. Cf. Fed. R. App. P. 22 (request to a
circuit court for a certificate of probable cause, which is
required as a prerequisite to appeal in habeas corpus
proceedings, is to be considered by a circuit judge or
judges as the court directs).
- 23 -
judicial personnel would have to keep track of the amount of time
they had spent on particular diversity cases.
A second possibility would be to have diversity litigants as
a class bear the full cost of diversity cases as a class by
charging in each case the average amount. In other words, the
average total cost to the federal judicial system of a diversity
case would be determined, and any diversity litigant filing in
federal court would be charged a filing fee equal to that amount.
This would be the simplest and most efficient approach.
A final possibility would be some hybrid of the preceding
two approaches. For example, a uniform fee corresponding to the
basic salary and overhead costs of the average diversity case
might be charged in each case, and, in addition, readily ascer-
tainable costs of specified types which had been present in a
particular case could be charged at their actual amounts. 49/
This approach would avoid a potentially burdensome case-by-case
inquiry as to the actual total cost of a case to the system, but
would result in a closer approximation of the amount charged to
actual cost.
C. Requiring a Particularized Showing of Bias
The continuation of diversity jurisdiction is sometimes
justified by reference to a supposed danger of bias in state
proceedings against litigants from other states. Access to a
federal forum in diversity cases might be conditioned on a
showing that bias of this type would actually be encountered in
state proceedings.
This approach would be consistent with that taken under
other remedies for bias. In both the state and federal systems,
for example, a purely abstract possibility of bias is not grounds
for granting a change of venue; rather, an actual danger of bias
in the initial venue must be established. Under the "local bias"
rationale for retaining federal diversity jurisdiction, it is
conceived of as a change-of-venue mechanism, by which cases are
removed from a state jurisdiction to the federal jurisdiction as
a response to possible bias against out-of-state litigants.
Given this conception, it is difficult to see why the
showing of an actual danger of bias that is normally required for
change of venue should be dispensed with. This approach could be
implemented by requiring, as a condition for proceeding in
federal court in diversity cases, a showing by a party that he
would be denied an impartial trier or tribunal in state
proceedings on account of bias against persons from other states,
49/ Cf. the compensation schedules for "costs" in chapter 123 of
the Judicial Code.
- 24 -
and that transferring the case to federal court would avoid such
bias.
D.
Redefining Corporate Citizenship
A final possibility would be to re-define the notion of
state citizenship for corporations so that diversity of citizen-
ship would be present in a smaller class of cases. This has been
done in the past. State citizenship for corporations was initially
defined as the state of incorporation. As a result of legislation
adopted in 1958, however, a corporation is now also deemed a
citizen of the state in which it has its principal place of
business. 50/ Since most diversity cases involve corporate
litigants, 51/ broadening the notion of state citizenship for
corporations could have a significant effect on the volume of
diversity cases.
It might, for example, be provided that a corporation is a
citizen of any state in which it is licensed to do business. 52/
This approach seems consonant with the supposed function of
diversity jurisdiction as a safeguard against bias against
out-of-state parties. Under the stated condition, a corporation
would be an in-state enterprise as well as an out-of-state
enterprise -- even if its principal place of business and place
of incorporation were elsewhere -- and would not obviously be
more exposed to the possibility of local bias than other business
operations in the state. 53/
50/ See 28 U.S.C. $ 1332 (c). As a result of legislation adopted
in 1964, $ 1332 (c) further provides that, in a direct action
against an insurer, the insurer is also deemed a citizen of
the state of which the insured is a citizen.
51/ See 1978 Senate Diversity Jurisdiction Hearings, supra
note 2, at 66 (one or both of the opposing parties is a
corporation in over 75% of diversity cases).
52/ For discussion of other possible changes in the notion of
corporate citizenship, see American Law Institute, supra
note 40, at 125-29; Wright, Miller & Cooper, supra note 27,
$3601 at 583 (proposal to bar federal forum where
corporation doing business in state is sued on a claim
arising from its activities in the state).
53/ Consider, for example, a case in which a citizen of Delaware
sues a corporation which is incorporated in Delaware
("Corporation A") but does no business there, and an
otherwise similar case in which a Delaware citizen sues a
corporation ("Corporation B") which is not a citizen of
Delaware as that notion is currently defined but which
(Footnote Continued)
- 25 -
* * *
In sum, the Department of Justice supports the general
abolition of diversity jurisdiction proposed in H.R. 3689 and
supports the intermediate reform options proposed or suggested by
the remaining bills as discussed in this report.
The limitation or elimination of diversity jurisdiction is
long overdue. No other pending reform is of comparable
importance in relieving the overload of the federal judicial
system 54/; no reform could be more appropriate as an adjustment
of feceral-state responsibilities under the principles of
federalism. We commend the leadership you have shown on this
issue and earnestly hope that this initiative will be met with a
spirit of statesmanship and accommodation among other interested
members of Congress.
The Office of Management and Budget has advised that there
is no objection to the submission of this report from the
standpoint of the Administration's program.
Sincerely,
Robert A. McConnell
Assistant Attorney General
(Footnote Continued)
carries on substantial business in Delaware and employs many
people in the state. If we assume -- as the "local bias"
rationale for retaining diversity jurisdiction requires --
that people in Delaware are prejudiced against out-of-state
businesses, it is apparent that Corporation A would be at
creater risk on account of such prejudice than Corporation
B, but the current rules would allow a federal forum in the
suit against B but not A. The suggested re-definition of
corporate citizenship would avoid such perverse results.
54/ As noted earlier, diversity cases account for about
one-quarter of all civil filings, 40% of all civil trials,
and 60% of all civil jury trials in the federal districts
courts, and for about 15% of appeals from district court
decisions. They take up over one-fifth of the total work
time of federal district judges. See Federal Judicial
Center, Federal District Court Time Study 15 (1979).
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5/81
THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release
May 3, 1984
The President today signed the following legislation:
S. 1186 which restores coastal trading privileges for the vessels
Dad's Pad and Zorba; and
S.J. Res. 210 which designates the year beginning April 1, 1984,
and ending March 31, 1985, as the "Year of Excellence in Education."
=
# # #
THE WHITE HOUSE
WASHINGTON
May 2, 1984
MEMORANDUM FOR FRED F. FIELDING
FROM:
JOHN G. ROBERTS
ofd
SUBJECT:
Draft OMB Report on S. 919, a Bill
to Reauthorize the Equal Access to
Justice Act and for Other Purposes
OMB has asked for our views as soon as possible on a
proposed OMB report on S. 919, a bill to reauthorize and
amend the Equal Access to Justice Act. The brief OMB report
reiterates points made in the more elaborate Justice Depart-
ment report on S. 919, which we cleared several weeks ago.
The report expresses support for a reauthorization of the
Equal Access to Justice Act, but objects to provisions in
S. 919 that would change the current law. Specifically, the
report objects to a provision defining the position of the
United States that must be "substantially justified" to
avoid shifting legal fees as the underlying agency action
rather than the position argued in court. This provision
would greatly expand the inquiry under the Act and require
courts to go beyond the position argued in court and
scrutinize previous agency arguments, even though the agency
abandoned them. The OMB report also opposes extending the
Act to non-adversary Social Security Act hearings, and to de
novo review of agency determinations not to award fees under
the Act.
This report is consistent with the previously-cleared
Justice report, and I have no objections.
Attachment
THE WHITE HOUSE
WASHINGTON
May 2, 1984
MEMORANDUM FOR BRANDEN BLUM
LEGISLATIVE ATTORNEY
OFFICE OF MANAGEMENT AND BUDGET
FROM:
FRED F. FIELDING Orig. signed by FFF
COUNSEL TO THE PRESIDENT
SUBJECT:
Draft OMB Report on S. 919, a Bill
to Reauthorize the Equal Access to
Justice Act and for Other Purposes
Counsel's Office has reviewed the above-referenced report,
and finds no objection to it from a legal perspective.
FFF:JGR:aea 5/2/84
CC: FFFielding/JGRoberts/Subj/Chron
THE WHITE HOUSE
WASHINGTON
May 2, 1984
MEMORANDUM FOR BRANDEN BLUM
LEGISLATIVE ATTORNEY
OFFICE OF MANAGEMENT AND BUDGET
FROM:
FRED F. FIELDING
COUNSEL TO THE PRESIDENT
SUBJECT:
Draft OMB Report on S. 919, a Bill
to Reauthorize the Equal Access to
Justice Act and for Other Purposes
Counsel's Office has reviewed the above-referenced report,
and finds no objection to it from a legal perspective.
FFF:JGR:aea 5/2/84
1
CC: FFFielding/JGRoberts/Subj/Chron
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5/81
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF management AND BUDGET
WASHINGTON, D.C. 20503
April 27, 1984
SPECIAL
LEGISLATIVE REFERRAL MEMORANDUM
TO:
LEGISLATIVE LIAISON OFFICER
Department of Justice
Department of Health and Human Services
Department of the Interior
Department of the Treasury
General Services Administration
Department of Transportation
Department of Housing and Urban Development
Department of Defense
Federal Labor Relations Authority
National Labor Relations Board
Small Business Administration
SUBJECT:
Draft OMB report on S. 919, a bill to reauthorize the Equal Access
to Justice Act and for other purposes
The Office of Management and Budget requests the views of your
agency on the above subject before advising on its relationship
to the program of the President, in accordance with OMB Circular
A-19.
Please provide us with your views no later than
COB Tuesday, May 1, 1984. (NOTE: A Justice report on S. 919 was circulated for
comment 4/19/84.)
Direct your questions to Branden Blum (395-3802), the legislative
attorney in this office.
James C. Murr for
Assistant Director for
Legislative Reference
Enclosure
CC: C. Wirtz
K. Wilson
P. Szervo
P. Woodworth
R. Greene
F. Fielding
Honorable Strom Thurmond
Chairman
DRAFT
Committee on the Judiciary
United States Senate
Washington, D.C. 20510
Dear Mr. Chairman:
S. 919, permanently reauthorizing the Equal Access to Justice Act
creates serious problems in its present form. The Administration
is particularly concerned about the provisions of S. 919 that
would (a) extend the Act to Social Security Act hearings, and,
(b) define the position of the United States which must be
"substantially justified" to include the "underlying agency
action".
The underlying agency action provision, if adopted, is certain to
generate lengthy litigation over which parties within an agency
took given positions, and when they did so -- all for sole direct
purpose of determining and further generating legal fee payments.
Moreover, in most cases where agency actions are overturned, the
provision would, in effect, establish an automatic fee payment
requirement. (This is a result rejected by the D.C. Circuit in
the case of Spencer V. NLRB, 712 F.2d 539.) Further, as a result
of the provision in S. 919 that would eliminate the judgment fund
as a source of payment, excessive and unanticipated fee payments
will come out of S&E accounts and will increase the pressure for
and incidence of late-year appropriations supplementals.
Accordingly, the Administration strongly believes that
maintenance of the status quo or modification of the current
language of the bill is in order.
The proposed extension of Act to non-adversary Social Security
Act hearings is also objectionable, and may have the unintended
effect of forcing government representation at all stages of SSA
proceedings. The protracted administrative proceedings likely to
result from extension of the Act to such hearings will, in the
end, adversely affect the ability of claimants to pursue
benefits. Such a result would not be consistent with current
efforts to improve the SSA system. Accordingly, the
Administration strongly opposes any inclusion of non-adversary
SSA hearings under the Act.
The Administration is also concerned about the de novo review
provision which will require the court to conduct a complete
rehearing of the agency determination not to award EAJA fees.
The result would be an increase in the cost of litigation and
court time and would further increase the number of fee awards.
The Administration is prepared to support a straight
reauthorization of the Act on a permanent basis or to reach
further compromise on the language of the bill, but strongly
recommends against favorable consideration by the Committee of
2
S. 919 in its current form.
DRAFT
Sincerely,
David A. Stockman
Director
THE WHITE HOUSE
WASHINGTON
May 16, 1984
MEMORANDUM FOR FRED F. FIELDING
FROM:
JOHN G. ROBERTS OPR
SUBJECT:
H.R. 4176 -- Boundary Confirmation of
the Southern Ute Indian Reservation
Richard Darman has asked for comments on the above-
referenced enrolled bill by 5:00 p.m. Thursday, May 17.
This bill is intended to remove the considerable confusion
that has arisen over the status of land within the Southern
Ute Indian Reservation in Southwestern Colorado, and the
accompanying confusion concerning legal jurisdiction. The
bill would fix the boundaries of the reservation, define
"Indian trust land" within the reservation, and then specify
which authority has jurisdiction over Indians and non-Indians
on such land. Indian territorial jurisdiction over non-Indians
is limited to trust land, and non-Indians on trust land are
subject to Federal enclave law pursuant to 18 U.S.C. § 1152
only on such trust land. The bill would also permit the
State of Colorado to exercise criminal and civil jurisdiction
over incorporated towns within the reservation.
OMB and Interior recommend approval, Justice has no objection,
and Agriculture defers to Interior. Agriculture unsuccessfully
attempted to have a provision added to the bill specifying
that the bill did not affect the San Juan National Forest;
but language to this effect was included in the pertinent
committee reports. I have reviewed the memorandum for the
President prepared by OMB Assistant Director for Legislative
Reference James M. Frey, and the bill itself, and have no
objections.
Attachment
THE WHITE HOUSE
WASHINGTON
May 16, 1984
MEMORANDUM FOR RICHARD G. DARMAN
ASSISTANT TO THE PRESIDENT
FROM:
FRED F. FIELDING Orig. signed by FFF
COUNSEL TO THE PRESIDENT
SUBJECT:
H.R. 4176 -- Boundary Confirmation of
the Southern Ute Indian Reservation
Counsel's Office has reviewed the above-referenced enrolled
bill, and finds no objection to it from a legal perspective.
FFF:JGR:aea 5/16/84
CC: FFFielding/JGRoberts/Subj/Chron
THE WHITE HOUSE
WASHINGTON
May 16, 1984
MEMORANDUM FOR RICHARD G. DARMAN
ASSISTANT TO THE PRESIDENT
FROM:
FRED F. FIELDING
COUNSEL TO THE PRESIDENT
SUBJECT:
H.R. 4176 -- Boundary Confirmation of
the Southern Ute Indian Reservation
Counsel's Office has reviewed the above-referenced enrolled
bill, and finds no objection to it from a legal perspective.
FFF:JGR:aea 5/16/84
CC: FFFielding/JGRoberts/Subj/Chron
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5/81
Document No. 204551ss
WHITE HOUSE STAFFING MEMORANDUM
DATE:
5/15/84
ACTION/CONCURRENCE/COMMENT DUE BY:
5:00 p.m. May 17th
SUBJECT:
H.R. 4176 BOUNDARY CONFIRMATION OF THE SOUTHERN UTE
INDIAN RESERVATION
ACTION FYI
ACTION FYI
VICE PRESIDENT
McFARLANE
MEESE
McMANUS
BAKER
MURPHY
DEAVER
OGLESBY
STOCKMAN
ROGERS
DARMAN
P
SS SPEAKES
FELDSTEIN
SVAHN
FIELDING
VERSTANDIG
FULLER
WHITTLESEY
HERRINGTON
HICKEY
JENKINS
REMARKS:
Please provide any comments/recommendations by 5:00 p.m. Thursday,
May 17th.
Thank you.
RESPONSE:
Richard G. Darman
Assistant to the President
1984 MAY 15 PM 5: 18
Ext. 2702
Ro.
OFFICE OF PRESIDENT UNITED
EXECUTIVE OFFICE OF THE PRESIDENT
S
OFFICE OF MANAGEMENT AND BUDGET
1984 MAY 15 4: 23
WASHINGTON, D.C. 20503
MEMORANDUM FOR THE PRESIDENT
Subject: Enrolled Bill H.R. 4176 - Boundary Confirmation of the
Southern Ute Indian Reservation
Sponsor - Rep. Kogovsek (D) Colorado
Last Day for Action
May 22, 1984 - Tuesday
Purpose
(1) Confirms the boundaries of the Southern Ute Reservation in
Colorado and (2) clarifies criminal and civil jurisdiction over
Indians and non-Indians.
Agency Recommendations
Office of Management and Budget
Approval
Department of the Interior
Approval
Department of Justice
No objection
(Inf
Department of Agriculture
Defers to Interior
Discussion
H.R. 4176 would (1) confirm the boundaries of the Southern Ute
Reservation in southwestern Colorado to conform to the
administrative area within which the Bureau of Indian Affairs now
exercises its service responsibilities; (2) define Indian trust
land for the purpose of establishing criminal and civil
jurisdiction within the reservation boundaries; and (3) clarify
criminal and civil jurisdiction over Indians and non-Indians on
the trust and non-trust lands within the reservation.
In 1868 a reservation for the Ute Indians was established in
southwestern Colorado. Between then and 1938 a series of actions
under Federal laws caused the Southern Ute Reservation to become
a checkerboard of individually-owned Indian trust land, private
homesteaded land, and federally-owned reservation trust lands.
Checkerboard patterns of land ownership on other Indian
reservations have led to extensive litigation over civil and
criminal jurisdiction by creating opportunities for defendants to
challenge the authority of whatever government is prosecuting
them. H.R. 4176 is designed to avoid such litigation by
legislatively clarifying jurisdiction over lands and persons
within the boundaries of the Southern Ute Reservation.
2
As enrolled, H.R. 4176 incorporates all but one of the amendments
recommended by the Administration in testimony before Senate and
House Committees. The Congress did not adopt Department of
Agriculture language stating that the bill would not affect
existing ownership or management of lands within the San Juan
National Forest; however, language to this effect was included in
committee reports. In its enrolled bill letter, Agriculture
advises that with the understanding that the bill does not
directly affect National Forest System lands, it defers to the
Secretary of the Interior.
H.R. 4176 passed both Houses of the Congress by voice vote.
Assistant James m.Srey Director for
Legislative Reference
Enclosures
H.R. 4176
Ainety-eighth Congress of the United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Monday, the twenty-third day of January,
one thousand nine hundred and eighty-four
An Act
To confirm the boundaries of the Southern Ute Indian Reservation in the State of
Colorado and to define jurisdiction within such reservation.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
CONGRESSIONAL PURPOSE
SECTION 1. The purposes of this Act are-
(1) to resolve uncertainty over the boundaries of the Southern
Ute Indian Reservation and the status of unrestricted land on
such reservation, and
(2) to avoid long and costly litigation over issues dependent on
reservation or Indian country status.
INDIAN TRUST LAND DEFINED
SEC. 2. For purposes of this Act, the term "Indian trust land"
means any land within the boundaries of the Southern Ute Indian
Reservation which—
(1) is held by the United States in trust for the benefit of the
Southern Ute Indian Tribe or individual Indians, or
(2) is owned by the United States and reserved for use or
actually used in the administration of Indian affairs.
Any right-of-way bounded on both sides by Indian trust land shall be
Indian trust land. Any other right-of-way shall not be Indian trust
land.
BOUNDARIES OF THE SOUTHERN UTE INDIAN RESERVATION DEFINED
SEC. 3. The Southern Ute Indian Reservation in the State of
Colorado is declared to have the following boundaries:
(1) Bounded on the north by the southern boundary of the
lands—
(A) ceded to the United States by certain bands of Ute
Indians under the Articles of Convention entered into on
September 13, 1873, and ratified by the Act approved
April 29, 1874 (18 Stat. 36), and
(B) described in article I of such Articles of Convention.
(2) Bounded on the south by the boundary line between the
States of Colorado and New Mexico as described in article II of
the treaty between the United States and the Ute Indians
concluded March 2, 1868, and proclaimed November 6, 1868 (15
Stat. 619).
(3) Bounded on the west by the eastern boundary of the Ute
Mountain Ute Indian Reservation.
(4) Bounded on the east by the southernmost 15 miles of the
eastern boundary of the lands reserved to the Ute Indians by
article II of the treaty between the United States and the Ute
H.R. 4176-2
Indians concluded March 2, 1868, and proclaimed November 6,
1868 (15 Stat. 619), except that the lands east of such boundary
in township 32 north, range 1 west, New Mexico principal
meridian, that are held by the United States in trust for the
benefit of the Southern Ute Indian Tribe are part of the South-
ern Ute Indian Reservation.
JURISDICTION OVER RESERVATION
SEC. 4. (a) Such territorial jurisdiction as the Southern Ute Indian
Tribe has over persons other than Indians and the property of such
persons shall be limited to Indian trust lands within the reservation.
(b) Any person who is not an Indian and the property of any such
person shall be subject to the jurisdiction of the United States under
section 1152 of title 18, United States Code, only on Indian trust
land.
(c) Any law of the United States related to the sale, possession,
introduction, or manufacture of alcoholic beverages or to trading
with Indians within Indian country, or within the Indian reserva-
tion, shall apply, with respect to the Southern Ute Indian Reserva-
tion, only on Indian trust land.
JURISDICTION OVER INCORPORATED MUNICIPALITIES WITHIN THE
RESERVATION
SEC. 5. The State of Colorado shall exercise criminal and civil
jurisdiction within the boundaries of the town of Ignacio, Colorado,
and any other municipality which may be incorporated under the
laws of Colorado within the Southern Ute Indian Reservation, as if
such State had assumed jurisdiction pursuant to the Act of
August 15, 1953 (67 Stat. 588), as amended by the Act of April 11,
1968 (82 Stat. 79).
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.