Schum v. Bailey

This is an appeal from the dismissal of a diversity action by the United States District Court for the District of New Jersey. The district court concluded that plaintiff's claim was time-barred under the New York statute of limitations for medical malpractice claims. The plaintiff, Diana M. Schum, is a New Jersey resident. In her complaint she alleges that the defendant, Charles P. Bailey, M.D., subjected her to unnecessary surgery in St. Barnabas Hospital in Bronx, New York, on October 25, 1967, and to resulting treatment in New York until October 21, 1970.¹We conclude that the district court should have applied the New Jersey statute of limitations. Since under that statute plaintiff's complaint was not properly dismissed, we reverse the judgment below. We remand the case for further consideration of the affirmative defense of res judicata. In March of 1974, Schum filed her diversity complaint in the District of New Jersey. On September 23, 1974, defendant Bailey responded with a motion to dismiss the complaint as to him for lack of personal jurisdiction.²Relying onInternationalShoe Co. v. Washington,326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), Bailey urged that he did not have sufficient contacts with New Jersey for that state, or for a federal district court sitting in that state to compel his appearance. In support of his motion, Bailey filed an affidavit suggesting that, although he was licensed in New Jersey, he did not practice medicine there. While that motion was under consideration, Schum filed a second complaint in the United States District Court for the Southern District of New York. That complaint named as defendants the same individuals sued in the New Jersey action and made the identical allegations. Schum filed no affidavits in opposition to the motion to dismiss the New Jersey action as to Bailey, and on November 21, 1974, that motion was granted. She took no appeal from that judgment.

In the New York suit Bailey moved for summary judgment on the ground that the cause of action alleged was time-barred by New York's three-year statute of limitations. The district court agreed with Bailey and on July 23, 1975, it dismissed that action. Judge Owens's opinion held: (1) that either § 214(6) or § 215(3) of the New YorkPage 500Civil Practice Law and Rules³applied; (2) that under either section the governing time bar was three years; and (3) that Schum did not fall within any of the exceptions which, under New York law, would toll the application of that statute of limitations. Schum appealed to the United States Court of Appeals for the Second Circuit, which affirmed Judge Owens's decision.⁴Schum has not attempted to reopen the final judgment in the New York action.

On October 27, 1975, Schum filed in the District of New Jersey a motion under Rule 60(b) of the Federal Rules of Civil Procedure for relief from the judgment dismissing her complaint against Bailey. In support of that motion, she filed an affidavit by her attorney which suggested that Bailey had professional staff relationships with hospitals in Newark and Jersey City and that Bailey sometimes performed surgery in one of them. This affidavit contradicted the earlier affidavit submitted by Bailey, upon which the district court had relied in dismissing the complaint against Bailey. Accordingly, on June 22, 1976, the court granted the motion for relief from judgment.

It should be noted that the incidents of New Jersey practice relied upon by the district court in reopening its earlier judgment did not relate in any way to the treatment of Schum. But Bailey does not urge that the contacts with New Jersey upon which the court relied in granting the Rule 60(b) motion were insufficient to meet the low due process threshold ofInternational Shoe Co. v. Washington,326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). Thus, for present purposes we will assume that the granting of Rule 60(b) relief was proper.

With the case restored to the calendar in the District of New Jersey, Bailey moved for summary judgment on the ground that under the circumstances of this case New Jersey would apply the New York statute of limitations, under which the action was time-barred.⁵The district court accepted that argument and granted Bailey's motion for summary judgment. Had it accepted Schum's argument that the New Jersey statute of limitations applied, the court would have been faced with the applicability of the rule ofLopez v. Swyer,62 N.J. 267,300 A.2d 563(1973). InLopez,the New Jersey Supreme Court held that the New Jersey two-year statute of limitations does not begin to run until the injured party knows, or reasonably should know, not only of the injury but also of the basis for the actionable claim. Schum contends that she did not learn until 1973 that her 1967 surgery had been unnecessary. Thus, if the New Jersey statute of limitations is to be applied, there probably would be a question as to when the statute began to run, and summary judgment would not be proper.See Goodman v. Mead JohnsonCo.,534 F.2d 566(3d Cir. 1976).

In reaching its decision, the district court recognized that because Schum was domiciled in New Jersey, that state was an interested forum. The court noted, however, that Bailey was a New York resident who was licensed in New York and who was practicing medicine there, that Schum had consulted Bailey only in New York, and that the surgery and treatment had all taken place there. The court recognized that a true conflict existed between the interests of the forum and the interests of the state in which the disputed medical services were rendered. It then reviewed the New Jersey authorities in order to predict whether, if the suit had been brought in New Jersey state court, that court would apply the New Jersey or the New York statute of limitations. The district court concluded that New Jersey, whose interest was limited to the compensation of its domiciliary, would, after weighing New York's competing interests, apply the New York statute.Page 501

A.Statute of Limitations

We agree with the district court that New Jersey was not a neutral forum and that there was a true conflict between New Jersey's interests and those of New York. However, we think that a more detailed identification of those interests is required, particularly in a case growing out of the rendition of sophisticated medical services in a market which, although artificially divided by state boundaries, extends throughout the tri-state metropolitan area. Before turning to a prediction of how the New Jersey courts would resolve this conflict, we will attempt to identify those interests.

The law of any sovereignty with respect to indemnification for personal injuries may involve one or more of three broad categories of public policies. The two policies most commonly identified in conflict of laws discussions arecompensationanddeterrence.Less commonly identified, but sometimes referred to in cases discussing the applicability of automobile guest statutes, is an interest which, for want of a better term, may be called thecostpolicy.⁶The compensation policy is most intimately associated with the sovereignty of the injured person's domicile. That policy reflects the sovereignty's desire that the injured party not become a charge on its society and that he be restored, if possible, to productivity. The deterrence policy as a justification for allowing tort suits is based on the behavioral assumption that exacting compensation from the wrongdoer or from his insurance carrier will deter his future misconduct. That policy is generally associated with the sovereignty in which past misconduct took place and in which future misconduct may occur. Although more than one sovereignty may have an interest in the application of the compensation or deterrence policies, it is generally assumed that a truly neutral forum does not.⁷Finally, states are interested in the cost burden that large payments for personal injury reparations may impose upon the furnishing of goods and services thought to be socially desirable. The relationship between the level of medical malpractice insurance premiums and the cost and availability of medical services in a given state is a striking illustration of the need to consider the cost policy. As with the other two policies, it would appear that, especially in a multistate metropolitan area comprising a single market for medical services, more than one sovereignty might have an interest in the cost policy. However, a truly neutral forum would appear to have no such interest.

Thus, it seems that a truly neutral forum would have no interest in any of the three policies which have been identified. On the other hand, a forum could well be situated such that it is interested in the application of one but not all of these policies to the particular dispute. At the same time another sovereignty could be affected in one or more of the other respects. Where the application of one state's law would promote that state's interests but frustrate the interests of the other state, a true conflict exists.

That is exactly what happened here. As we indicated earlier, Schum is a New Jersey resident. She initially consulted a New Jersey physician, who referred her to Dr. Bailey in New York. All of Dr. Bailey's services to her, including the disputed surgery, were performed in New York, where he maintains his major practice. However, on occasion he does practice in New Jersey. Under these circumstances New Jersey has a clear policy interest in compensating its domiciliary. Because Dr. Bailey sometimesPage 502practiced medicine in New Jersey, arguably New Jersey's deterrence interest is implicated too. When compared to that of New York, New Jersey's interest in the cost of reparations which might result from this suit is so attenuated that New Jersey probably should be regarded, with respect to the cost policy, as neutral. On the other hand, while New York has no compensation interest here, its deterrence and cost policies are clearly involved. New York is vitally interested in the cost of medical services to its own residents and thus in the impact of medical malpractice claims on the cost of those services. Moreover, New York City is a national, as well as a regional, center for medical research and sophisticated health care. It attracts patients for such care from the entire region and from even more distant places. Because its health care industries provide many jobs for New York residents, New York is interested in the cost of such care even for nonresident patients. The policy of repose reflected in New York's statute of limitations affects that cost and the degree of deterrence. New York has chosen not to adopt the discovery rule with the same liberality as did New Jersey inLopez v. Swyer,63 N.J. 267,300 A.2d 563(1973).

In order to resolve such a conflict between two states' laws, a federal court exercising its diversity jurisdiction must apply the conflict of laws rules of the state in which it sits.KlaxonCo. v. Stentor Elec. Mfg. Co.,313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941).See Guaranty Trust Co. v. York,326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945). In any rational system of federalism we should not be required to speculate as to how the Supreme Court of New Jersey would resolve the multiple variables discussed above. The first perceived need which led to the calling of the 1787 convention was the need for an interstate umpire. When the policies of two states are in actual conflict, which state's policy should prevail should be a matter of such umpiring and thus a question of federal law. The full faith and credit clause implies as much. But while the Supreme Court has taken the sensible course of federalizing conflicts over power to adjudicate,see, e. g., Shaffer v. Heitner,433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977);International Shoe Co. v.Washington, supra,it has refused to resort to federal law to resolve other interstate policy conflicts,see Day Zimmerman,Inc. v. Challoner,423 U.S. 3, 96 S.Ct. 167, 46 L.Ed.2d 3 (1975). Under theKlaxonregime such policy conflicts are resolved by a race to judgment. The court which first applies its choice of policies prevails and the devil take the hindmost. The consequences in this case of our being bound by state choice of law rules is a classic illustration of what is wrong with theKlaxonrule. Despite our misgivings about that rule, as an intermediate federal court we are bound by it and thus we must determine how the New Jersey courts would have resolved the conflict.

After surveying five New Jersey cases and one Third Circuit case which the parties suggested as relevant, the district court concluded that, while New Jersey had not yet ruled on a true conflict in a statute of limitations context, its Supreme Court would probably defer in this case to the interests of New York. Looking at the same authorities, we agree that the Supreme Court of New Jersey has not spoken definitively. But we make the opposition prediction.

Our starting point isMellk v. Sarahson,49 N.J. 226,229 A.2d 625(1967), where the New Jersey Supreme Court abandoned the traditional locus delicti rule. InMellkNew Jersey was clearly interested in the outcome because of the compensation interest of the plaintiff, a New Jersey domiciliary. In refusing to apply the guest statute of the place where the accident occurred, the court spoke of governmental interest analysis. In cases sinceMellkin which the plaintiff was a New Jersey domiciliary, the New Jersey courts have similarly applied governmental interest analysis. In virtually every case the court applied the New Jersey rule which favored recovery by that domiciliary.See, e.g. Rose v. Port of New York Auth.,61 N.J. 129,293 A.2d 371(1972);Wuerffel v. Westinghouse Corp.,148 N.J. Super. 327,Page 503372 A.2d 659(L.Div. 1977);Raskulinecz v. Raskulinecz,141 N.J. Super. 148,357 A.2d 330(L.Div. 1976). The only exception to that rule isFranco v. Davis,51 N.J. 237,239 A.2d 1(1968). However, in that case there was a conflict between the policy of compensating a New Jersey domiciliary for an out-of-state accident and New Jersey's domestic policy prohibiting suits by children against a parent. Only inPfau v. Trent Aluminum,55 N.J. 511,263 A.2d 129(1970), was New Jersey a truly neutral forum. InPfauthe New Jersey Supreme Court did balance the competing governmental interests of the state of the plaintiff's domicile (Connecticut) and the state where the accident occurred (Iowa). But neither the parties in this action nor the district court has called to our attention any New Jersey case which, despite the compensation interest of a New Jersey domiciliary, chose to apply a rule of decision less favorable to that interest than the law of the forum.

In the famous case ofHeavner v. Uniroyal, Inc.,63 N.J. 130,305 A.2d 412(1973), the New Jersey Supreme Court abandoned the rule that the forum always applies its own statute of limitations. InHeavnera husband and a wife, who were residents of North Carolina, sued on claims arising out of the purchase of an allegedly defective tire in North Carolina. The accident occurred in North Carolina and the motor vehicle involved in that accident was registered there. Since Uniroyal was a New Jersey corporation, it was amenable to suit here. The plaintiffs had no connection with New Jersey other than their desire to obtain the benefit of this state's more favorable statute of limitations. Since the plaintiffs were not domiciled in New Jersey, New Jersey had no compensation interest in the alleged victims. New Jersey arguably could have asserted a deterrence interest since, although the product which allegedly caused the injury had not apparently been manufactured in that state, Uniroyal was a New Jersey corporation with a large portion of its productive capacity located there. The New Jersey Supreme Court did not assert that interest, however, and held that the North Carolina statute of limitations should apply.

InHenry v. Richardson-Merrell,508 F.2d 28(3d Cir. 1975), we reviewed the New Jersey conflict of laws cases. We observed:

In a series of cases beginning withMellk v.Sarahson,49 N.J. 226,228 A.2d 625(1967) andPfauv. Trent Aluminum Company,55 N.J. 511,263 A.2d 129(1970), New Jersey courts adopted the governmental interest approach to choice of law questions. This approach requires a two-step analysis. The court determines first the governmental policies evidenced by the laws of each related jurisdiction and second the factual contacts between the parties and each related jurisdiction. A state is deemed interested only where application of its law to the facts in issue will foster that state's policy. This approach does not count up contacts and make quantitative determinations of interest based on which state has the greatest number of contacts. Instead, the qualitative nature of contacts is considered so that only contacts which are likely to promote valid state policies are considered relevant.Mullane v.Stavola,101 N.J. Super. 184,243 A.2d 842, 845 (1968).

508 F.2d at 31-32 (footnote omitted). InHenrywe concluded that New Jersey was a disinterested forum and that as such it would borrow the foreign state's statute of limitations.

As we noted above, inHeavnerNew Jersey was seemingly disinterested in deterring Uniroyal with respect to events taking place wholly outside New Jersey, despite Uniroyal's strong corporate presence in New Jersey. That disinterest suggests that in the instant case New Jersey would place no weight, for choice of law purposes, on Dr. Bailey's local licensure or on his New Jersey activities which were unrelated to the New York surgery performed on Schum. But, unlike the plaintiffs inHeavner,the plaintiff here is a New Jersey domiciliary. Where the New Jersey forum has an interest in compensating its domiciliary, it has strongly tended to resolve any conflict of laws in favor of the application of its own law.Page 504

We do not mean to suggest that New Jersey manipulates choice of law on an ad hoc basis. Rather, we point out that two different choice of law theories are extant. It is far from clear which theory the New Jersey courts have embraced. Under one theory, for which the late Professor Brainerd Currie was the leading spokesman, if a forum is substantially interested it will always apply its own law.⁸The second theory is expressed in § 145 of the Second Restatement of Conflict of Laws. Under that theory even an interested forum will balance the competing interests of the several states having an affected interest. Noting that the New Jersey courts had occasionally cited § 145 with approval, the district court concluded that New Jersey was fully committed to balancing even when it was an interested forum. But the New Jersey courts have also cited Professor Currie approvingly.See,e. g., Pfau v. Trent Aluminum,55 N.J. 511, 515-16, 526,263 A.2d 129(1970). More significant, except inFranco v. Davis,51 N.J. 237,239 A.2d 1(1968), sinceMellkNew Jersey has never engaged in interest balancing in any case which produced an application of a foreign rule adverse to the interest of a New Jersey domiciliary-claimant. InFranco v. Davis,though, it was a competing New Jersey policy which prevailed. The New Jersey Supreme Court has been in the forefront of those states which have enlarged the circumstances in which residents can recover for personal injuries.See, e. g., Henningsen v. BloomfieldMotors,32 N.J. 358,161 A.2d 69(1960). In the present case we do not believe that New Jersey would balance its compensation interest against New York's cost and deterrence interests affected by medical malpractice suits. rather, we predict that New Jersey would disregard New York's interests and instead apply its own more favorable statute of limitations. Our prediction may not be any more informed than that of the district judge who concluded that New Jersey would apply § 145 of the Restatement. But there are three of us and we speak last.

B.Effect of New York Judgment

Having concluded that New Jersey would apply its own discovery rule, we cannot affirm the grant of summary judgment for the reasons relied upon by the district court below. However, that only begins the inquiry as to a proper disposition of this case, for Bailey asserts as a separate ground for affirmance the res judicata bar of the judgment he obtained in the Southern District of New York. Since under the regime ofKlaxonandDayZimmerman, Inc. v. Challoner, supra,true conflicts are resolved not by federal mediation but by a race to judgment, the New York judgment obviously presents a formidable obstacle for Schum. The federal district court in New York adjudicated the statute of limitations question and concluded that the New York statute of limitations would apply. That judgment is a bar to the present New Jersey action unless in this action that New York judgment can be set aside.

The grounds for relief from federal judgment are specified in Rule 60(b) of the Federal Rules of Civil Procedure. Prior to the adoption of Rule 60(b), some of the grounds for relief from a judgment listed in that rule could have been the basis for an independent action to enjoin the enforcement of a judgment. In bringing such an independent action against a prior judgment, it is not necessary, in order to obtain relief, to return to the court which rendered the first judgment. 7 J. Moore, Federal Practice § 60.36, p. 603 (2d ed. 1975). Current Rule 60(b) explicitly preserves that option.⁹Therefore, we must inquire whether Schum's moving papers have suggested anything which might warrant relief from the New York judgment.

Certain grounds for relief under Rule 60(b) are clearly unavailable to Schum. ForPage 505example, the New York judgment is neither void under subsection (4) nor satisfied under subsection (5). Moreover, Schum points to no newly discovered evidence which, under subsection (2), would have led in New York to the granting of a new trial. The only evidence which might conceivably qualify is the evidence revealing Bailey's New Jersey affiliations. However, since New York, like New Jersey, is an interested forum, these New Jersey contacts would not have prompted New York to adopt New Jersey'sLopez v. Swyerdiscovery rule. On the contrary, we believe that New York still would have applied its own statute of limitations. Thus, the evidence would not have affected the outcome of that action. For the same reasons, Schum does not qualify for relief under Rule 60(b)(1), which provides for relief on grounds of mistake, inadvertence, surprise, or excusable neglect.

Schum contends that she is entitled to relief from the New York judgment either because that judgment was obtained by fraud, misrepresentation, or other misconduct of the adverse party,seeFed.R.Civ.P. 60(b)(3), or because the circumstances of her case qualify as "any other reason justifying relief from the operation of the judgment", Fed.R.Civ.P. 60(b)(6). To support these claims, she points to the misleading affidavit filed on Bailey's behalf with regard to his original motion to dismiss for lack of personal jurisdiction. She contends that this affidavit induced her to abandon her suit in theLopez v. Swyerforum and to resort instead to a forum which, under theKlaxon-Challonerrule, was free to apply its own unfavorable law.

A preliminary difficulty with Schum's attack on the New York judgment is her failure to avail herself of an appellate remedy in her first New Jersey lawsuit. She argues, however, that she was euchred out of that remedy by the same misrepresentation which led her to file suit in a legally unfavorable forum. We agree. If she was misled into resorting to a disadvantageous forum, she was also misled into acquiescing in the dismissal of the New Jersey suit for lack of in personam jurisdiction. We attach no significance to her failure to appeal the dismissal of that New Jersey case. For all practical purposes, her failure to appeal and the issue of relief from the New York judgment merge into the identical legal question.

That legal question is whether the filing of a false or misleadingly incomplete affidavit in support of a Rule 12(b)(2) motion, which according to the pleadings before us resulted in Schum's resort to a forum with an unfavorable choice of law rule, is a ground for relief from a federal judgment.

In resolving that question, we are presented with a potentially complex choice of law problem. Our initial difficulty is to determine which law — federal or state — governs the issue of whether relief from the judgment should be granted. As Professor Moore points out, there are three possible views. First, a court might readErie v. Tompkins,304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), to require the application of state law on the ground that an independent equitable action for relief from a judgment originates in state law. Second, state law might govern in a diversity jurisdiction case, while federal law would govern in a federal question case. Finally, a court could always apply federal law to decide the issue of relief from a federal judgment. Professor Moore argues that the third view is the correct one. Pointing out that federal courts have long asserted the power to enjoin in appropriate situations the relitigation of matters adjudged by a federal judgment, he urges that the governing law for relief from such a judgment should be uniform and federal. 7 J. Moore, Federal Practice ¶ 60.37[2], p. 635 (2d ed. 1975).

We agree with Professor Moore that the granting of relief from a federal judgment, whether that judgment was obtained in a federal question or a diversity case, should be a matter of federal law. Applying federal law promotes uniformity and prevents forum-shopping. If the result were otherwise, we would witness the ludicrous spectacle of litigants scurrying around in search of the state that provides the best avenue of attack on the federal judgment. Moreover,Page 506since in this case the alleged fraud was perpetrated upon the federal court system, that system has a substantial interest in applying its own law to rectify the wrong done to it. Therefore, we conclude that the law that governs the appropriateness of relief from the judgment must be federal.¹⁰

The factual pattern presented by this case is sufficiently unique to make classification into an established category for relief difficult. The closest analog is an action for relief based on fraud. Treating Schum's claim as one for relief from a judgment on that ground, we must, in passing, address the extrinsic-intrinsic fraud distinction ofUnited States v.Throckmorton,98 U.S. 61, 25 L.Ed. 93 (1878). Under theThrockmortonrule intrinsic fraud, such as the use of perjured testimony, false pleadings, or forged documentary evidence, will not provide a basis for an original action for relief from a judgment. Subsequent cases have cast some doubt upon the viability of the distinction drawn inThrockmorton. SeeHazel-Atlas Glass Co. v. Hartford-Empire Co.,322 U.S. 238, 64 S.Ct. 997, 88 L.Ed. 1250 (1944);Marshall v. Holmes,141 U.S. 589, 12 S.Ct. 62, 35 L.Ed. 870 (1891). InPublicker v.Shallcross,106 F.2d 949, 950 (3d Cir. 1939), this court predicted that, if faced with the question again, the Supreme Court would abandon the distinction.¹¹The Supreme Court has not spoken sincePublicker,and we are still bound by the prediction we made there. In this circuit the intrinsic or extrinsic nature of the fraud is irrelevant. Therefore, we need not consider whether a false pleading filed in a separate action would, for purposes of theThrockmortonrule, be treated as intrinsic fraud.

The question, then, is whether as a matter of federal law a charge that a party was induced by a fraudulent misrepresentation of fact to resort to a forum with a less favorable choice of law rule states a cause of action for relief from the judgment rendered in that forum. As with all attacks upon final judgments, there is tension between the public interest in favor of finality and the equitable principle that a defrauder should not enjoy any advantage obtained as a result of his own wrongdoing. We think that under the circumstances presented here that tension must be resolved in favor of Schum and against strict adherence to finality. Thus, we conclude that the district court has the power to entertain Schum's claim for relief from the New York judgment. We point out, however, that the pleadings in this case are so unique that our holding is not intended to be a precedent for any large inroads upon the finality principle.

To some extent the issue of relief from a judgment was litigated by these parties in connection with Schum's application to reopen the earlier judgment rendered in the District of New Jersey. These issues are not necessarily identical, however, since relief from the New Jersey judgment was available on the grounds listed in Rule 60(b)(1) and (2) rather than on the ground of fraud. Thus, the district court has not passed upon the question whether Schum was in fact fraudulently induced to resort to an unfavorable forum. Bailey's affidavit in opposition to the motion to reopen the New Jersey judgment puts in issue many of the elements of a fraud claim, including his intention to mislead. Since material issues of fact are in dispute, the question of relief from the New York judgment cannot be resolved without a hearing in the district court.Page 507

The judgment appealed from will be vacated and the case remanded for further proceedings consistent with this opinion.