Ever since Erie RR Co. v. Tompkins,[1] when a case is in federal court on the basis of diversity jurisdiction, all questions of substantive law must be decided according to the governing state law. At times, however, the law of the state may be unclear or nonexistent on the particular issue before the federal court. That circumstance does not relieve the federal court of its duty to determine what result a state court would reach if the case had been brought in state court.[2] It may not remit the matter to the state courts for decision.

Diversity litigants are entitled to an adjudication of their rights, and the federal court must decide questions of state law whenever necessary for the disposition of a case. The Supreme Court has held that federal courts may not deny plaintiffs the opportunity to assert their rights in the federal rather than the state courts "merely because the answers to the questions of state law are difficult or uncertain or have not yet been given by the highest court of the state."[3]

When there is no controlling authority from the state's highest court on an issue of state law, a federal court must make a prediction of how the state's highest court would rule if presented with the issue. In so doing, a federal court is not bound by lower state court decisions, but they do have great weight in informing the federal court's prediction on how the highest court of the state would resolve the question. In the absence of strong evidence that the New York Court of Appeals would decide the issue differently, rulings of the Appellate Division that are on point are particularly persuasive evidence of New York law.

While the federal courts do the best they can in such circumstances, the situation obviously is not ideal. Accordingly, a number of states have adopted the Uniform Certification of Questions of Law Act[4] or a court rule counterpart as a mechanism for cooperation among federal and state courts in obtaining an authoritative ruling as to a controlling question of state law.

Rule 500.27 of the Rules of the Court of Appeals, Discretionary Proceedings to Review Certified Questions from Federal Courts and Other Courts of Last Resort, is such a rule. It provides that "[w]henever it appears to the Supreme Court of the United States, any United States Court of Appeals, or a court of last resort of any other state that determinative questions of New York law are involved in a cause pending before that court for which no controlling precedent of the Court of Appeals exists, the court may certify the dispositive questions of law to the Court of Appeals."[5]

In New York, the procedure is not available to a U.S. District Court, a U.S. Bankruptcy Court or to another state's trial or intermediate appellate court. It is entirely discretionary on the part of the court deciding whether to certify a question as well as the New York Court of Appeals in deciding whether to accept such a certification. "Certification of open questions of state law to the state supreme court can 'in the long run save time, energy, and resources and helps build a cooperative judicial federalism,' but '[i]ts use in a given case rests in the sound discretion of the federal court.'"[6]

Second Circuit Local Rule 27.2, Certification of Questions of State Law, permits that court to certify to the New York Court of Appeals "determinative questions of New York law [that] are involved in a case pending before [us] for which no controlling precedent of the Court of Appeals exists."[7] In deciding whether to certify a question, the U.S. Court of Appeals for the Second Circuit has stated that its analysis is principally guided by the following three factors: "(1) whether the New York Court of Appeals has addressed the issue and, if not, whether the decisions of other New York courts permit us to predict how the Court of Appeals would resolve it; (2) whether the question is of importance to the state and may require value judgments and public policy choices; and (3) whether the certified question is determinative of a claim before us."[8]

Second Circuit Local Rule 27.2(b) provides that "A party may move to certify a question of state law by filing a separate motion or by including a request for certification in its brief." When the Second Circuit certifies a question, the court retains jurisdiction "so that it may dispose of the appeal following the Court of Appeals' decision to either provide [it] with its guidance or decline certification."[9]

Valuable But Not Routine

The Second Circuit has praised the certification procedure as "a valuable device for securing prompt and authoritative resolution of unsettled questions of state law, especially those that seem likely to recur and to have significance beyond the interests of the parties in a particular lawsuit."[10] At the same time, it recognized that "issues of state law are not to be routinely certified to the highest courts of New York or Connecticut simply because a certification procedure is available. The procedure must not be a device for shifting the burdens of this Court to those whose burdens are at least as great."¹¹

The New York Court of Appeals similarly "underscore[d] the great value in New York's certification procedure" in providing "the requesting court with timely, authoritative answers to open questions of New York law, facilitating the orderly development and fair application of the law and preventing the need for speculation."¹²

The Second Circuit resorts to the certification procedure "only sparingly, mindful that, in diversity cases that require us to apply state law, 'it is our job to predict how the [New York Court of Appeals] would decide the issues before us.'…Therefore, we do not certify questions of law 'where sufficient precedents exist for us to make [a] determination.'"[13] The U.S. Court of Appeals for the Sixth Circuit expressed the same view, stating that "the federal courts generally 'will not trouble our sister state courts every time an arguably unsettled question of state law comes across our desks. When we see a reasonably clear and principled course, we will seek to follow it ourselves.'…The state court need not have addressed the exact question, so long as well-established principles exist to govern a decision."[14]

However, "federal courts sitting in a diversity case are in 'a particularly poor position…to endorse [a] fundamental policy innovation…. Absent some authoritative signal from the legislature or the courts of [the state], we see no basis for even considering the pros and cons of innovative theories…."[15]

For example, in Rhynes v. Branick Mfg Corp.,[16] a diversity action in which plaintiff suffered personal injuries when a tire exploded inside an allegedly defective safety cage manufactured by a business predecessor of defendant, plaintiff urged the court to adopt a theory of product liability known as the "product line" rule by which one who acquires a manufacturing business and continues to manufacture a line of its products assumes by force of law strict liability for defects in units of that line manufactured by his predecessor.

The court declined to do so, finding the rule's origins in theories of estoppel and vicarious liability that underlie Section 402A of the Restatement of Torts and were not adopted by any Texas court and by only three other state courts. The sole Texas authority cited to the court was a passage from a dissent in a factually distinguishable case. The Fifth Circuit stated: "We have no assurance whatever that Texas would adopt the product line rule of liability. That rule represents at least a radical extension of Texas product liability theory, at most a shift to a new and additional basis for liability. Neither action is appropriate for us. Whatever the merits or demerits of the proposed new rule, for us to adopt it for Texas would be presumptuous. We decline to do so."[17]

Court of Appeals Rule

The New York Court of Appeals has prescribed the following certification procedure in its Rule 500.27(b)–(g):

"(b) The certifying court shall prepare a certificate which shall contain the caption of the case, a statement of facts setting forth the nature of the case and the circumstances out of which the questions of New York law arise, and the questions of New York law, not controlled by precedent, that may be determinative, together with a statement as to why the issue should be addressed in the Court of Appeals at this time."

"(c) The certificate, certified by the clerk of the certifying court under its official seal, together with the original or a copy of all relevant portions of the record and other papers before the certifying court, as it may direct shall be filed with the Clerk of the Court."

"(d) The Court, on its own motion, shall examine the merits presented by the certified question, to determine, first, whether to accept the certification and,second, the review procedure to be followed in determining the merits." This may be either by filing the record and briefs in a normal course appeal (§500.12) or the alternative procedure where the appeal is decided on the basis of the record or appendix and briefs in the courts below and additional letter submissions on the merits. Rule §500.11.

"(e) If certification is accepted, the Clerk of the Court of Appeals shall request any additional papers the Court requires for its review" and will notify the parties of time periods for filing briefs and oral argument, if any.

"(f) If the constitutionality of an act of the legislature [of New York] is involved in a certification to which the State of New York or one of its agencies is not a party, the Clerk of the Court shall notify the New York Attorney General…"

"(g) When a determination is rendered by the Court of Appeals with respect to the questions certified, it shall be sent by the Clerk of the Court of Appeals to the certifying court."

Accepting or Declining

While a case may present a novel and important question of state law, that is no guarantee that the Court of Appeals will accept the certification. The court may prefer to wait until the appellate division has had an opportunity to consider the issue and give it the benefit of its reasoned decision. If certification is not accepted, the federal court, although left without guidance from the state, must "for better or for worse" decide the issue.[18]

The Court of Appeals may also decline to answer the questions certified for a number of other reasons. It may find that it is unclear whether the certified questions will be determinative of the underlying matters or that the tendered issues are better left for definitive resolution by the federal courts themselves.[19] The Court of Appeals has also declined to accept certification where the issue presented might become moot by the lifting of a preliminary injunction that was then in place before its decision could be rendered.[20] The Court of Appeals will not accept certification of "[a]bstract or overly generalized questions [that] might…curb this Court's ability to promulgate a precedentially prudent and definitive answer to a law question…"[21]

The federal certifying court will often "invite the New York Court of Appeals to expand or narrow the focus of [its] question as the Court deems appropriate, and we welcome any further guidance the Court of Appeals chooses to offer with respect to the state law issues raised by this appeal."[22]

Thomas R. Newman, of counsel at Duane Morris, practices in the areas of insurance and reinsurance law, including coverage, claims handling, contract drafting and arbitration and litigation.

Endnotes

1. 304 U.S. 64, 78 (1938).
2. Brastex Corp. v. Allen International, Inc. 702 F.2d 326, 330 (2d Cir. 1983).
3. Meredith v. City of Winter Haven, 320 US 228, 234-235 (1943).
4. Adopted in 1995 by the National Conference of Commissioners on Uniform State Laws.
5. 22 NYCRR §500.27(a).
6. Thompson v. Paul, 547 F.3d 1055, 1065 (9th Cir. 2008), quoting, Lehman Bros. v. Schein, 416 U.S. 386, 391 (1974).
7. Doe v. Guthrie Clinic, 710 F.3d 492, 497 (2d Cir. 2013).
8. Ministers & Missionaries Benefit Bd. v. Snow, 780 F.3d 150, 154 (2d Cir. 2015).
9. Second Circuit Local Rule 27.2(a); Golden v. Winjohn Taxi Corp., 311 F.3d 513, 524 (2d Cir. 2002).
10. Kidney v. Kolmar Laboratories, 808 F.2d 955, 957 (2d Cir. 1987).
11. Ibid.
12. Tunick v. Safir, 94 N.Y.2d 709, 711-712 (2000).
13. Amerex Grp. v. Lexington Ins. Co., 678 F.3d 193, 200 (2d Cir. 2012).
14. State Auto P. & C. Ins. v. Hargis, 785 F.3d 189, 194 (6th Cir. 2015).
15. Combs v. International Ins., 354 F.3d 568, 577 (6th Cir. 2004), quoting, Dayton v. Peck, Stow & Wilcox Co. (Pexto), 739 F.2d 690, 694 (1st Cir. 1984). Federal courts hearing diversity matters should be extremely cautious about adopting "substantive innovation" in state law. Rhynes v. Branick Mfg. Corp., 629 F.2d 409, 410 (5th Cir. Unit A 1980).
16. 629 F.2d 409 (5th Cir. 1980).
17. Id., at 410.
18. Connecticut Performing Arts Foundation v. Brown, 801 F.2d 566, 568 (2d Cir. 1986).
19. Yesil v. Reno, 92 N.Y.2d 455, 457 (1998).
20. Tunick v. Safir, 94 N.Y.2d 709, 711 (2000).
21. Yesil v. Reno, 92 N.Y.2d 455, 457 (1998).
22. Golden v. Winjohn Taxi Corp., 311 F.3d 513, 524 (2d Cir. 2002).

Reprinted with permission from New York Law Journal, © ALM Media Properties LLC. All rights reserved.