Opinion · Supreme Court of the United States
Klaxon Co. v. Stentor Electric Manufacturing Co.
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941)
- Type
- Opinion
- Court
- Supreme Court of the United States
- Jurisdiction
- Federal
- Date
- 1941-06-02
- Topic
- general
How later courts describe this case
- holding that in diversity cases, this court must use the choice-of-law rules that “conform to those prevailing in [Pennsylvania’s] state courts”
- holding that in diversity cases the federal courts must follow the conflict of laws rules prevailing in the state in which they sit
- holding that in a diversity action the federal court applies the state court’s choice of law rules
- holding that federal courts sitting in diversity must apply the choice of law rules of the forum state
- holding that a federal court hearing a diversity case applies the conflicts of law rules of the state in which it sits
- holding that when federal courts decide matters within the scope of the Erie doctrine, they must employ the choice-of-law rules of the state in which they sit
- holding that a federal court exercising diversity jurisdiction must follow the choice of law rules of the forum state
- holding that federal court in diversity action should apply choice of law rules of state in which court sits
Citator
Klaxon Co. v. Stentor Electric Manufacturing Co. is good law as far as the corpus records: followed by 1 later decision, and nothing recorded condemns it.
- Authority status
- positive
- Cited by
- 8627 opinions
- Followed
- 1 times
Headnotes
- Civil Procedure — Choice of Law In diversity of citizenship cases, a federal court must follow the conflict of laws rules prevailing in the state in which it sits, and may not make an independent determination of what the better or proper conflicts rule should be. 313 U.S. at 496
- Civil Procedure — Erie Doctrine The prohibition against independent federal determinations in diversity cases extends to the field of conflict of laws, because otherwise the accident of diversity of citizenship would constantly disturb equal administration of justice in coordinate state and federal courts sitting side by side, and any other ruling would do violence to the principle of uniformity within a state. 313 U.S. at 496
- Civil Procedure — Erie Doctrine Where the conflict of laws rules of the forum state govern, the proper function of the federal court sitting in that state is to ascertain what the state law is, not what it ought to be; subject only to review by the Supreme Court on any federal question that may arise, the state is free to determine whether a given matter is governed by the law of the forum or by some other law. 313 U.S. at 496
- Civil Procedure — Choice of Law The Full Faith and Credit Clause does not require a state, contrary to its own policy, to give effect in actions brought locally on contracts made in other states to laws of those states relating, not to the validity of such contracts, but to the right to add interest to the recovery as an incidental item of damages. 313 U.S. at 497
- Civil Procedure — Choice of Law Nothing in the Constitution ensures unlimited extraterritorial recognition of all statutes or of any statute under all circumstances; the Full Faith and Credit Clause does not compel a forum state to apply another state's statute where such application would interfere with the forum's local policy. 313 U.S. at 497
KLAXON CO.v. STENTOR CO.,313 U.S. 487(1941)
61 S.Ct. 1020
KLAXON COMPANYv. STENTOR ELECTRIC MANUFACTURING CO., INC.
CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE THIRD CIRCUIT.
No. 741.
Argued May 1, 2, 1941.
Decided June 2, 1941.
CERTIORARI,312 U.S. 674, to review the affirmance of a
judgment recovered for breach of a contract,30 F. Supp. 425. The
review in this Court was limited to the question whether § 480 of
the New York Civil Practice Act is applicable to an action in the
federal court in Delaware.
Section 480 of the New York Civil Practice Act relates to procedure and remedy rather than to substantive right.Funkhouserv.J.B. Preston Co.,290 U.S. 163;Standard OilCo. v.United States, 107 F.2d 402, 418.
This Court's decision inErie R. Co. v.Tompkins,304 U.S. 64, and the adoption of the Federal Rules of Civil Procedure, make it of paramount importance that the distinction between substantive law and procedure be kept clear.
The New York legislature regarded § 480 as a regulation of its own adjective law and not as a grant of substantive right entitled to enforcement in foreign jurisdictions. SeeMatter of1610 P, Inc.,168 Misc. 918; cf.,Fidelity-Phenix Fire Ins.Co. v.Cortez Cigar Co.,92 F.2d 882;Kline Bros. v.RoyalIns. Co., 192 F. 378.
There appears to be no Delaware decision as to whether interest is substantive or procedural. It is doubtful whether such a decision would be of binding force on a federal court sitting in Delaware. Cf.,Ruhlinv.New York Life Ins. Co.,304 U.S. 202; E.E. Cheatham, Sources of Rules for Conflict of Laws (1941), 89 U. of Pa. L.R. 430, 446-7; Note (1939), 52 Harv. L.R. 1002.
By the preponderance of authority the matter of interest is deemed procedural and governed by thelex fori. Board of CountyCommissionersv.United States,Page 489308 U.S. 343,349,350;Standard Oil Co. v.United States, 107 F.2d 402;Goddardv.Foster, 17 Wall. 123;Matherv.Stokely, 218 F. 764;George M. Jones Co. v.Canadian Nat.Ry. Co.,14 F.2d 852;Mitchellv.Reolds Farms Co.,256 N.W. 445,449;Butte, A. P. Ry. Co. v.United States,61 F.2d 587;Massachusetts Benefit Assn. v.Miles,137 U.S. 689.
Inconvenience and delay in the trial of cases involving conflict of laws will result from a determination that interest is substantive; controlling considerations of convenience and flexibility in judicial administration require that interest be classified as procedural. Clark, Procedural Aspects of the New State Independence (1940), 8 Geo. Wash. L. Rev. 1230, 1234; "The Tompkins Case and the Federal Rules" (1941), 24 J. Am. Jurid. Soc. 158, 160.
In every such case in the federal District Court on a cause of action arising elsewhere than at the forum the court must determine thelex locias a step preliminary to the award or denial of interest as well as the rate thereof and the period covered thereby. This must be done even though thelocusof the cause of action may be unimportant for any other purpose in the case.
The conclusion of law as to the controllinglocusmust be based on proof of facts frequently difficult to ascertain,e.g., in a contract action, the intention of the parties as to where performance of the obligation involved should take place.
It would be intolerable to have thelex locidetermined as it was in the case at bar. Here the place of performance was not considered an issue in the case until after the verdict was rendered. The District Court considered that interest was governed by thelex loci contractus. It remained for the Circuit Court to find that the law of the place of performance controlled the question. Under these circumstances, naturally, no evidence was offered by petitioner to show that New York was not the intendedPage 490place of performance. The conclusion of the courts below that New York was the place of performance of petitioner's obligation to use its best efforts to exploit the patents rests on no factual support other than collateral evidence offered on other issues.
Thelocuswill often be a distant State. Its statute books may be unavailable at the forum, especially if, as here, the relevant provision is found in a Code of Procedure. Or there may be no statutory provision whatever, in which event the court must examine the state decisions including those of the inferior courts if the matter has not been settled by the State Supreme Court. SeeWestv.American Tel. Tel. Co.,311 U.S. 223.
Delay will be the concomitant of the research and inquiry thus necessitated. Moreover, as the law of interest in many States is obscure and confused, frequent appeals with respect to the denial or award of interest pursuant to state law must be expected.
A collateral effect of a determination that interest is "substantive" is to cast doubt upon the validity of certain of the Federal Rules of Civil Procedure. Clark, "The Tompkins Case and the Federal Rules," 24 J. Am. Jurid. Soc. 158, 161.
An independent federal rule regarding the allowance of interest may be promulgated either by Congress, or by this Court, or by the District Courts.
Pending the adoption of such a rule or as an alternative thereto, the District Courts are guided by the principles as to the allowance of interest which the federal courts themselves have formulated. SeeJonesv.Foster,70 F.2d 200;Companhiade Navagacao Lloyd Brasileirov.C.G. Blake Co.,34 F.2d 616.Mr. Murray C. Bernays, with whomMessrs. Paul Leahy, HenryGale, andAbraham Friedmanwere on the brief, for respondent.Page 491
No matter by what law the question is tested, the courts below were right to apply the New York statute in adding interest to the amount of the verdict. UnderErie R. Co. v.Tompkins,304 U.S. 64, the Delaware conflicts rule governs. The rule is (Restatement, Conflict of Laws, § 584; accord, 3 Beale, Conflict of Laws, § 584.2, p. 1601) that "The court at the forum determines according to its own Conflict of Laws rule whether a given question is one of substance or procedure." The doctrine of conflicts, however, is "purely a question of local common law."Krygerv.Wilson,242 U.S. 171,176; cf., 1 Beale, Conflict of Laws, X, and § 5.1, p. 51. When this conflict question is presented, the federal court is bound to decide it according to the law of conflicts of the State in which it is sitting.Sampsonv.Channell,110 F.2d 754,760-2, cert. den.,310 U.S. 650;Waggamanv.General Finance Co.,36 F. Supp. 85,87; Goodrich, Conflict of Laws, 2d Ed., p. 24; Comment, 4 Federal Rules Service Cases 1.3, Case 1.
The Delaware conflicts rule is that damages for breach of contract and the measure thereof are governed by thelex loci— in our case the law of New York.Mackenziev.Omar, 4 Harr. (Del.) 435, 457;Canadian Industrial Alcohol Co. v.Nelson, 8 Harr. (Del.) 26, 58.
Moreover, it has been held in Delaware that the rate of interest is governed by thelex loci. Barstowv.Thatcher, 3 Houst. (Del.) 32;Mackenziev.Omar, 4 Harr. (Del.) 435, 458-9.
It follows that the right to interest as an element of damages is similarly governed. Cf.,Curtisv.Campbell,76 F.2d 84, cert. den.,295 U.S. 737.
The same result would have been reached if the courts below had gone directly to the New York law, since the measure of damages and the right to interest are substantive under New York law.Dykev.Erie R. Co.,Page 49245 N.Y. 113,118;Keiferv.Grand Trunk R. Co.,12 A.D. 28;Loucksv.Standard Oil Co.,224 N.Y. 99,109;Preston Co. v.Funkhouser,261 N.Y. 140,145.
The classic distinction is between the nature, the obligation, and the interpretation of a contract, all of which are the substance (Liverpool Great Western Steam Co. v.Phenix Ins.Co.,129 U.S. 397,458), and "procedural" matters — such as, for example, the form of the action, as to whether it shall be assumpsit, covenant, or debt; all process, both mesne and final; pleadings; and rules of evidence.Pritchardv.Norton,106 U.S. 124,133-5.
The Delaware conflicts rule, that the measure of damages and interest are substantive and referable to thelex loci, is supported by the weight of federal and other authority. Restatement, Conflict of Laws, § 413; 2 Beale, Conflict of Laws, § 412.1, p. 1332;Chesapeake Ohio Ry. v.Kelly,241 U.S. 485; Robertson, Characterization in the Conflict of Laws (Harv. Univ. Press, 1940) 270.
On the right to interest as part of the damages the following federal decisions hold that thelex locigoverns.Freygangv.Vera Cruz P.R. Co., 154 F. 640;Wynnev.McCarthy,97 F.2d 964,970;U.S. v.Garland, 271 F. 14; cf.,Curtisv.Campbell,76 F.2d 84;Bellv.Lamborn,2 F.2d 205.
The prevailing rule is that thelex locigoverns.Scudderv.Union National Bank of Chicago,91 U.S. 406;Panav.Bowler,107 U.S. 529,546;Scotland Countyv.Hill,132 U.S. 107,117;Sloss-Sheffield Steel Iron Co. v.Tacony IronCo., 183 F. 645, aff'd 188 F. 896; 91 American State Reports 741; Restatement, Conflict of Laws, § 418; 2 Beale, Conflict of Laws, § 418.1, p. 1335; 16 Am. Eng. Encyc. of Law (2d Ed.), 1090; Note, Conflict of Laws — Interest as Damages — What Law Governs, 25 Mich. L. Rev. 537, 538; Note, Law Governing the Measure of Damages for Breach of Contract, 78 U. of Pa. L. Rev. 640, 644.Page 493
Sound reason and policy support the rule that the right to interest is governed by thelex loci. Western Union Tel. Co. v.Brown,234 U.S. 542,547; cf.,Slaterv.Mexican Nat. Ry.,194 U.S. 120;Curtisv.Campbell,76 F.2d 84,85; Restatement, Conflict of Laws, p. 699.
Since the New York statute is held substantive by controlling New York decisions, the courts below would, in any event, have been bound to apply that statute and add interest to the amount of the verdict, under the full faith and credit clause of the Constitution.Bradford Elec. Co. v.Clapper,286 U.S. 145,155;JohnHancock Ins. Co. v.Yates,299 U.S. 178,183.
Even before the amendment of § 480, N.Y. Civ. Pr. Act, it had been held that the measure of damages and the right to interest were of substance. The amendment acted upon a substantive right — the obligation of the contract; it accomplished its purpose by making mandatory the addition of interest to damages for breach of contract, whether theretofore liquidated or unliquidated.Stentor Electric Mfg. Co. v.Klaxon Co.,30 F. Supp. 432;Preston Co. v.Funkhouser,261 N.Y. 140;Funkhouserv.J.B. Preston Co.,290 U.S. 163.
The construction placed upon § 480 by the New York courts, and the New York rule that the right to interest for breach of contract is a substantive right, are part of the statute, as much so as though they were found in appropriate words in its text.Georgia Ry. Elec. Co. v.Decatur,295 U.S. 165,170;Westv.American Tel. Tel. Co.,311 U.S. 223.
The statute as thus construed is a substantive provision of every New York contract to which it is applicable, such as the contract in the case at bar. The contractual rights established thereby are rights of property, enforceable wherever the contract is sued upon.Loucksv.Standard Oil Co.,224 N.Y. 99;Curtisv.Campbell,76 F.2d 84.Page 494
To deprive a party of the benefit of such property right by refusing to give full faith and credit to the statute, would be a violation of the constitutional rights of such party.BradfordElec. Co. v.Clapper,286 U.S. 145;John Hancock Ins. Co. v.Yates,299 U.S. 178;Broderickv.Rosner,294 U.S. 629;cf. Sampsonv.Channell,110 F.2d 754,759.
In 1918, respondent, a New York corporation, transferred its entire business to petitioner, a Delaware corporation. Petitioner contracted to use its best efforts to further the manufacture and sale of certain patented devices covered by the agreement, and respondent was to have a share of petitioner's profits. The agreement was executed in New York, the assets were transferred there, and petitioner began performance there although later it moved its operations to other states. Respondent was voluntarily dissolved under New York law in 1919. Ten years later it instituted this action in the United States District Court for the District of Delaware, alleging that petitioner had failed to perform its agreement to use its best efforts. Jurisdiction rested on diversity of citizenship. In 1939 respondent recovered a jury verdict of $100,000, upon which judgment was entered. Respondent then moved to correct the judgment by adding interestPage 495at the rate of six percent from June 1, 1929, the date the action had been brought. The basis of the motion was the provision in § 480 of the New York Civil Practice Act directing that in contract actions interest be added to the principal sum "whether theretofore liquidated or unliquidated."1The District Court granted the motion, taking the view that the rights of the parties were governed by New York law and that under New York law the addition of such interest was mandatory.30 F. Supp. 425,431. The Circuit Court of Appeals affirmed,115 F.2d 268, and we granted certiorari, limited to the question whether § 480 of the New York Civil Practice Act is applicable to an action in the federal court in Delaware.312 U.S. 674.
The Circuit Court of Appeals was of the view that under New York law the right to interest before verdict under § 480 went to the substance of the obligation, and that proper construction of the contract in suit fixed New York as the place of performance. It then concluded that § 480 was applicable to the case because "it is clear by what we think is undoubtedly the better view of the law that the rules for ascertaining the measure of damages are not a matter of procedure at all, but arePage 496matters of substance which should be settled by reference to the law of the appropriate state according to the type of case being tried in the forum. The measure of damages for breach of a contract is determined by the law of the place of performance; Restatement, Conflict of Laws § 413." The court referred also to § 418 of the Restatement, which makes interest part of the damages to be determined by the law of the place of performance. Application of the New York statute apparently followed from the court's independent determination of the "better view" without regard to Delaware law, for no Delaware decision or statute was cited or discussed.
We are of opinion that the prohibition declared inErie R.Co. v.Tompkins,304 U.S. 64, against such independent determinations by the federal courts, extends to the field of conflict of laws. The conflict of laws rules to be applied by the federal court in Delaware must conform to those prevailing in Delaware's state courts.2Otherwise, the accident of diversity of citizenship would constantly disturb equal administration of justice in coordinate state and federal courts sitting side by side. SeeErie R. Co. v.Tompkins, supra, at 74-77. Any other ruling would do violence to the principle of uniformity within a state, upon which theTompkinsdecision is based. Whatever lack of uniformity this may produce between federal courts in different states is attributable to our federal system, which leaves to a state, within the limits permitted by the Constitution, the right to pursue local policies diverging from those of its neighbors. It is not for the federal courts to thwart such local policies by enforcing an independent "general law" of conflict of laws. Subject only to review by this CourtPage 497on any federal question that may arise, Delaware is free to determine whether a given matter is to be governed by the law of the forum or some other law. Cf.Milwaukee Countyv.WhiteCo.,296 U.S. 268,272. This Court's views are not the decisive factor in determining the applicable conflicts rule. Cf.Funkhouserv.J.B. Preston Co.,290 U.S. 163. And the proper function of the Delaware federal court is to ascertain what the state law is, not what it ought to be.
Besides these general considerations, the traditional treatment of interest in diversity cases brought in the federal courts points to the same conclusion. Section 966 of the Revised Statutes, 28 U.S.C. § 811, relating to interest on judgments, provides that it be calculated from the date of judgment at such rate as is allowed by law on judgments recovered in the courts of the state in which the court is held. InMassachusetts BenefitAssociationv.Miles,137 U.S. 689, this Court held that § 966 did not exclude the allowance of interest on verdicts as well as judgments, and the opinion observed that "the courts of the state and the federal courts sitting within the state should be in harmony upon this point" (p. 691).
Looking then to the Delaware cases, petitioner relies on one group to support his contention that the Delaware state courts would refuse to apply § 480 of the New York Civil Practice Act, and respondent on another to prove the contrary. We make no analysis of these Delaware decisions, but leave this for the Circuit Court of Appeals when the case is remanded.
Respondent makes the further argument that the judgment must be affirmed because, under the full faith and credit clause of the Constitution, the state courts of Delaware would be obliged to give effect to the New York statute. The argument rests mainly on the decision of this Court inJohn Hancock Mutual Life Ins.Co. v.Yates,Page 498299 U.S. 178, where a New York statute was held such an integral part of a contract of insurance, that Georgia was compelled to sustain the contract under the full faith and credit clause. Here, however, § 480 of the New York Civil Practice Act is in no way related to the validity of the contract in suit, but merely to an incidental item of damages, interest, with respect to which courts at the forum have commonly been free to apply their own or some other law as they see fit. Nothing in the Constitution ensures unlimited extraterritorial recognition of all statutes or of any statute under all circumstances.Pacific EmployersInsurance Co. v.Industrial Accident Comm'n,306 U.S. 493;Krygerv.Wilson,242 U.S. 171. The full faith and credit clause does not go so far as to compel Delaware to apply § 480 if such application would interfere with its local policy.
Accordingly, the judgment is reversed and the case remanded to the Circuit Court of Appeals for decision in conformity with the law of Delaware.Reversed.
- Page 495 Section 480, New York Civil Practice Act:
"Interest to be included in recovery. Where in any action, except as provided in section four hundred eighty-a, final judgment is rendered for a sum of money awarded by a verdict, report or decision, interest upon the total amount awarded, from the time when the verdict was rendered or the report or decision was made to the time of entering judgment, must be computed by the clerk, added to the total amount awarded, and included in the amount of the judgment. In every action wherein any sum of money shall be awarded by verdict, report or decision upon a cause of action for the enforcement of or based upon breach of performance of a contract, express or implied, interest shall be recovered upon the principal sum whether theretofore liquidated or unliquidated and shall be added to and be a part of the total sum awarded." ↩ - Page 496 An opinion inSampsonv.Channell,110 F.2d 754,759-62, reaches the same conclusion, as does an opinion of the Third Circuit handed down subsequent to the case at bar,Waggamanv.General Finance Co.,116 F.2d 254,257. See also Goodrich, Conflict of Laws, § 12. ↩