A Theory of Federal Common Law

Abstract

I. THE DEFINITION(S) OF FEDERAL COMMON LAW 589 II. THE ENCLAVES OF FEDERAL COMMON LAW 594 A. Cases Affecting the Rights and Obligations of the United States 594 B. Interstate Controversies 596 C. International Relations 599 D. Admiralty 602 E. "Significant Conflicts " Between "Uniquely Federal Interests " and the Operation of State Law 607 F. Preclusion 609 III. THE INADEQUACIES OF PRESENT THEORIES 614 A. Theories of Illegitimacy 614 B. Theories of Broad Power and Discretion 616 C. The Enclave Theories 620 IV. A THEORY OF FEDERAL COMMON LAW 627 A. The Basic Theory 627 B. Applying the Theory to the Enclaves of Federal Common Law 630 C. Bias in the Creation of State Law: A Necessary but Insufficient Condition. 644 D. Explaining the Incorporation of State Law as the Federal Common Law Rule 646 CONCLUSION: JUSTIFYING FEDERAL COMMON LAW 649 Federal common law is a puzzle. Despite Erie's declaration that "[t]here is no federal general common law,"1 well-established and stable pockets of federal common law persist in several areas: cases affecting the rights and obligations of the United States,2 disputes between states,3 cases affecting international relations,4 and admiralty.5 If anything, federal common law is expanding. Eighteen years ago, a case in which state law was in "significant conflict" with "uniquely federal interests" provided an occasion for the Supreme Court to create another form of federal common law.6 Five years ago, the Court added yet another piece to the puzzle, holding that the preclusive effect to be given to a judgment in a diversity case was a question of federal common law.7 Erie, of course, does not preclude common law rulemaking in these pockets. In these areas, federal common law applies in both state and federal courts; Erie bars federal courts only from creating federal common law applicable in federal courts when state courts would apply state law.8 But the statutory, policy, and constitutional rationales of Erie are in tension with the continued existence of federal common law.9 If federal (and state) courts have broad powers to make federal common law, then the power refused to federal courts in Erie pales in comparison to the power retained by federal (and state) courts to establish federal rules of decision. Reconciling Erie and federal common law is only a part of the challenge. Following the analysis of Paul Mishkin10 and Henry Friendly,11 the Supreme Court has held that courts are not required to exercise their federal common lawmaking powers in all cases; the application is in some cases discretionary, and courts can choose to apply extant state law rather than to create new federal law.12 As a practical matter, this declination of power lessens the tensions with Erie's penumbra. …