When Should Federal Common Law Govern Transnational Litigation?
June 29, 2022
The conventional wisdom is that transnational litigation “can trigger foreign relations concerns.” Because the federal government has primary responsibility for the United States’ relations with other nations, the question naturally arises whether federal law should govern such litigation even when neither a federal statute, nor the U.S. Constitution, nor a treaty is applicable. Currently, as I observed in a recent post, state law controls many of these issues.
In his contribution to the 2020 book The Restatement and Beyond, Gary Born (a TLB advisor) argued that this should change. He proposed “a body of federal common law rules” to “govern all private international law issues of judicial jurisdiction of foreign parties, international forum selection agreements, forum non conveniens, antisuit injunctions against foreign proceedings, act of state, choice of foreign law, and recognition of foreign judgments.” Yet in a recent decision, Cassirer v. Thyssen-Bornemisza Collection Foundation (2022), the Supreme Court passed up an opportunity to federalize choice of law rules in cases under the Foreign Sovereign Immunities Act (FSIA), finding “scant justification for federal common lawmaking.”
This post argues that Cassirer’s conclusion is true of transnational litigation more broadly. Certainly, the political branches may federalize rules for transnational litigation by passing statutes like the FSIA or by ratifying treaties. But federal courts should be loath to do the same through the device of federal common law. Rather than creating new federal common law rules to govern transnational litigation, as Born suggests, federal courts should consider pruning the rules that currently exist. They should maintain federal rules such as foreign official immunity that implement international law but should abandon rules such as the act of state doctrine that do not.
The Current Landscape
One can see how pervasive state law is in transnational litigation by reviewing the issues that Born considers proper for federalization. Under the Erie doctrine, choice of law and the recognition of foreign judgments are governed by state law even in federal court, and the Federal Rules of Civil Procedure incorporate state rules on personal jurisdiction through Rule 4(k)(1)(A). Federal courts have developed federal common law rules on the enforceability of forum selection clauses, forum non conveniens, and antisuit injunctions, but these rules are not preemptive and apply only in federal courts. Only the act of state doctrine and foreign official immunityare currently governed by preemptive federal common law that is binding on state courts.
The political branches have been reluctant to displace state law rules governing transnational litigation. In 1976, Congress passed the FSIA to codify the rules of foreign state immunity and made them binding on state courts. In 2010, Congress passed the SPEECH Act, which prohibits federal and state courts from recognizing foreign defamation judgments that do not meet the First Amendment’s standards for free speech, but a proposal by the American Law Institute to federalize the rules governing foreign judgments more generally failed to gain traction. The political branches have also ratified judicial assistance treaties. Some (like the Hague Service Convention) preempt conflicting state law; others (like the Hague Evidence Convention) do not.
Federal Common Law
In Erie, the Supreme Court held that there is “no federal general common law.” The Court later explained that federal common lawmaking is limited to instances when Congress has given federal courts the power to develop substantive law and instances when a federal rule is “necessary to protect uniquely federal interests.” Examples of the latter category include rules concerning the rights and obligations of the United States, disputes between U.S. states, admiralty cases, and cases implicating foreign relations.
A leading example of a federal common law rule in the area of foreign relations is the act of state doctrine, which prohibits courts in the United States from questioning the validity of a foreign government’s acts fully performed within its own territory. In Banco Nacional de Cuba v. Sabbatino (1964), the Supreme Court held that Erie did not apply to the act of state doctrine and that “an issue concerned with a basic choice regarding the competence and function of the Judiciary and the National Executive in ordering our relationships with other members of the international community must be treated exclusively as an aspect of federal law.” More recently, in Samantar v. Yousuf (2010), the Court held that the FSIA does not apply to foreign officials, whose immunity from suit “is properly governed by the common law.” Although the Court did not add the word “federal,” everyone assumes that foreign official immunity is now governed by federal common law that is binding on state courts.
The rules in other areas of transnational litigation have not been federalized like this. Subsequently, the Supreme Court held that federal courts exercising diversity jurisdiction are bound to apply the choice of law rules of the state in which they sit, even if those rules point to the application of foreign law. In Cassirer, the Court extended that rule to cases of jurisdiction under the FSIA. Lower federal courts have held that federal courts must also apply state rules on the recognition and enforcement of foreign judgments, and states have created a largely uniform body of law in this area through widespread adoption of uniform acts. In other areas, the Supreme Court has created rules of federal common law but made it non-preemptive, leaving state courts free to adopt their own rules. For example, federal courts apply the federal doctrine of forum non conveniens, but state courts may make their own rules, and many have adopted state doctrines of forum non conveniens that differ substantially from their federal counterpart.
Born’s Argument for More Federal Common Law
Born’s argument for federal common law rules to replace state law across a broad range of issues in transnational litigation has both a constitutional and a practical aspect. With respect to the Constitution, Born argues that the United States’ founding document “vests the federal government with both plenary and exclusive authority over U.S. foreign relations and commerce, while, exceptionally, forbidding State involvement in either field.”
Although Born is right that federal authority over foreign relations and commerce is plenary, it is equally clear that this authority is not exclusive, as Jack Goldsmith and Mike Ramsey have convincingly argued. Article I, § 10 of the Constitution does forbid the states from taking certain actions with respect to foreign relations, like entering treaties, but these prohibitions are limited. As Goldsmith has written, “[t]he most natural inference from these provisions and from the Constitution’s enumerated powers structure is that all foreign relations matters not excluded by Article I, Section 10 fall within the concurrent power of the state and federal governments until preempted by federal statute or treaty.”
On the practical side, Born argues that relying on state law “has produced a confused patchwork of uncertain rules, lacking any central unifying purpose, which are often in tension with one another.” He particularly takes issue with some states’ restrictive approaches towards enforcing forum selection clauses and most states’ liberal approaches towards enforcing foreign judgments, both of which he thinks are in “conflict with substantial national objectives and interests.”
It is not clear, however, that federal courts are institutionally capable of identifying national objectives and interests in foreign relations or pursuing them consistently. Responding to Born in the same 2020 book, Paul Stephan (another TLB advisor) noted that “lower-court diversity and highest-court cycling is more likely to produce entropy than consistent outcomes and clear intellectual leadership.” The political branches of the federal government are generally better placed to determine national objectives and decide how to pursue them. But the political branches do not seem particularly concerned about the current role of state law in transnational litigation. As noted above, Congress rarely legislates to displace state law in this area.
The Supreme Court’s recent decision in Cassirer offers further evidence (for TLB coverage of the decision see here, here, and here). There, the Court held that federal courts hearing claims against foreign states under the FSIA are required to use state choice of law rules to determine the applicable law. If there is any set of cases in which choice of law rules trigger foreign relations concerns, one would expect it to be cases against foreign states. But the U.S. government’s amicus brief disclaimed any need for a federal common law rule. Many U.S. courts outside the Ninth Circuit had applied state choice of law rules in FSIA cases, and none of these cases had created foreign relations concerns. In words equally applicable to Born’s proposal, the Supreme Court concluded that “the Ninth Circuit’s use of a federal choice-of-law rule in FSIA cases has been a solution in search of a problem, rejecting without any reason the usual role of state law.”
A Critical Look at Current Federal Common Law
As noted above, federal common law currently binds state courts on two main issues in transnational litigation, foreign official immunity and the act of state doctrine. Although the former still makes sense, the latter does not.
It makes sense to have uniform federal rules for foreign official immunity, just as there are uniform federal rules for foreign state immunity under the FSIA. The immunity of a foreign head of state should not change as she travels from Washington, D.C. to New York. Moreover, customary international law requires countries to recognize the immunity of foreign officials in certain circumstances. Regardless of whether one thinks that customary international law should always be treated as federal common law or not (for recent discussion see here and here), there is no doubt that the federal interest in preventing states from violating customary international law on immunity justifies the creation of federal common law.
The argument in favor of a federal act of state doctrine is far less clear. In contrast to foreign official immunity, the act of state doctrine is not required by international law, as Sabbatino itself made clear. Sabbatino based the act of state doctrine instead on separation of powers principles, reasoning that courts should not question the validity of a foreign government’s official acts to avoid judicial interference with the executive branch’s conduct of foreign policy.
But the act of state doctrine has changed significantly since then, from a broad doctrine for avoiding politically sensitive cases to one more narrowly focused on recognizing the validity of foreign governmental acts. “The act of state doctrine does not establish an exception for cases and controversies that may embarrass foreign governments,” the Supreme Court held in W.S. Kirkpatrick & Co. v. Environmental Tectonics Corp. (1990), “but merely requires that, in the process of deciding, the acts of foreign sovereigns taken within their own jurisdictions shall be deemed valid.” As the Restatement (Fourth) of Foreign Relations Law describes the doctrine in § 441, comment a, “[i]t operates as a special choice-of-law rule in that it precludes a court from denying effect to an official act on the ground that the act violates the public policy of the forum.”
Kirkpatrick’s narrowing of the act of state doctrine undermines the justification for treating it as a rule of federal common law. In the United States, choice of law is governed by state law. As noted above, the Supreme Court has held that federal courts exercising diversity jurisdiction are bound to follow the choice of law rules of the states in which they sit. If there is “scant justification” to override state choice of law rules with federal common law when the defendant is a foreign state, what is the justification for doing so when the validity of a foreign governmental act is at issue? Perhaps in some cases, refusing to recognize the validity of a foreign act of state might cause offense to a foreign state. But Kirkpatrick tells us that avoiding offense is not what the act of state doctrine is about. Moreover, as a rule to avoid offense, the doctrine is both over- and underinclusive. It applies in cases where questioning the validity of a foreign act would not result in offense, and it does not apply in cases that might result in offense but involve no question of validity. Cassirer indicates that the time has come for the Supreme Court to reconsider the status of the act of state doctrine as federal common law.
The United States has a federal system in which state law plays an important role. That is true in transnational litigation as well as in domestic litigation. Erie requires the application of state law even in federal courts on important questions like choice of law and the enforcement of foreign judgments. The Federal Rules of Civil Procedure incorporate state law on personal jurisdiction and other issues. Congress seems generally content with this situation, as does the Supreme Court.
The case for federal common lawmaking is strongest when customary international law speaks to questions of transnational litigation, as it does with respect to foreign official immunity. In such instances, a preemptive federal rule may be the best way to prevent violations of international law by U.S. states. But when customary international law does not speak to the question—as with the act of state doctrine—it is worth considering whether federal common lawmaking is truly justified.