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Yesterday we threw up a “breaking news” post on the Third Circuit’s latest reiteration of its prediction that Pennsylvania would move from the Restatement (Second) – or more precisely from its unique and peculiar interpretation of §402A – to the Third Restatement in product liability cases.
In response we received a comment/question from Ned Madeira at Pepper, Bexis’ very first mentor way back when (1982) Bexis first became a lawyer.  Ned queried whether a federal court in another circuit (say, an MDL judge in California or Illinois) would be obligated (as Third Circuit district judges are) to follow the Third Circuit’s prediction of Pennsylvania law.
Our gut reaction was “no,” since the scope of the stare decisis effect (as opposed to the persuasive value) of a court of appeals’ decision does not extend beyond that particular circuit.  We qualified that with our further view that a circuit court’s prediction of the law of a state in that circuit would likely prove extremely persuasive to other federal courts necessarily less familiar with that state’s law.
But that was just our gut reaction.
We figure, though, when a lawyer with as much experience as Ned Madeira asks a question, there are probably a lot of lawyers out there who don’t know the answer.
Not only that, by accident we ran across a case today concerning whether the California UCL (that state’s notorious consumer fraud statute) applies a discovery rule in the statute of limitations context.  Buckley v. DJO Surgical, 2012 WL 4849368, at *3 (S.D. Cal. Oct. 11, 2012).  Buckley said “no”, and in the course of saying “no” pointed out that while the California Supreme Court had never ruled on the question, the Ninth Circuit had provided the same “no” answer in Karl Storz Endoscopy-America, Inc. v. Surgical Technologies, Inc., 285 F.3d 848, 857 (9th Cir. 2002).
That’s ten years ago, and if there’s any state-law subject more widely litigated than the California UCL, we don’t know what that is.
It struck us that the UCL/discovery rule might be a good place to start looking for an answer to Ned’s question.
We weren’t disappointed, either.  It seems that a New Jersey federal court recently decided that (in light of more recent intermediate appellate authority in California) it didn’t want to follow the Ninth Circuit’s prediction of California law.  The court explained:

The Ninth Circuit’s interpretation of California state law is only persuasive, not binding, on this Court. . . .  When the Court sits in diversity jurisdiction, it must predict how a state’s highest court would resolve a state issue of law, and decisions of state intermediate appellate courts should be accorded significant weight in the absence of an indication that the highest state court would rule otherwise.  Therefore, the Court turns to the relevant precedent under California law.
Clark v. Prudential Insurance Co., 736 F. Supp.2d 902, 921 (D.N.J. 2010) (emphasis added).  Not a bad guess for us, it appears, however, Clark didn’t cite anything to support the bolded statement – so maybe that court was guessing, too.

We also note that, on the Pennsylvania Second/Third Restatement issue, the Third Circuit was predicting a change in the law.  Thus, it wouldn’t accomplish very much to look at intermediate state courts as in Clark.  Under their own rules of stare decisis, all lower Pennsylvania state courts are still obligated to follow Pennsylvania Supreme Court precedent from the 1960s and 1970s (before there ever was a Third Restatement) adopting the Second Restatement.
So we kept looking even after that shortcut.  It took us a while but we found some more authority.  In Factors Etc., Inc. v. Pro Arts, Inc., 652 F.2d 278 (2d Cir. 1981), the court stated the precise question at issue:  “whether, and under what circumstances, a ruling by a court of appeals, interpreting the common law of a state within its circuit, should be regarded as authoritative by the other federal courts of the nation.”  Id. at 282.  The Factors court recognized strong jurisprudential reasons why multiple, dueling court of appeals answers to the same state-law question was a bad idea:

[T]he opportunities for federal court departure from the normal paths of state law development should be held to a minimum, for the benefit of both the orderly development of state law and fairness to those subject to state law requirements.  Both values are served by recognizing, within the federal system, the authoritativeness of decisions on the law of a particular state rendered by the court of appeals for the circuit in which the state is located. . . .  Fairness to the public is promoted by making clear that there is a single, authoritative answer to the particular state law issue, instead of leaving the matter subject to the varying interpretations of the courts of appeals for the several circuits. . . .   Diversity jurisdiction, especially in its post-Erie incarnation, should not create needless diversity in the exposition of state substantive law.

Id.  But can the courts of appeals keep the decisional toothpaste in the tube?  The Factors court admitted it couldn’t.  “We need not and do not conclude that the state law holding of the pertinent court of appeals is automatically binding upon the federal courts of all the other circuits.”  Id. at 283.  So Factors admitted that it didn’t have the raw power to enforce uniformity.  There is no hierarchy among the various courts of appeals.  None outranks the other.
However, Factors also went on to articulate the second aspect of our speculation – that Erie predictions by the court of appeals of the circuit that encompasses the state in question should be viewed as very persuasively by the rest of the federal system:

Where, as here, the pertinent court of appeals has essayed its own prediction of the course of state law on a question of first impression within that state, the federal courts of other circuits should defer to that holding, perhaps always, and at least in all situations except the rare instance when it can be said with conviction that the pertinent court of appeals has disregarded clear signals emanating from the state’s highest court pointing toward a different rule.

652 F.2d at 283.  Thus, as the same court more recently put it, the first choice, of course, is state law, but where state law is inconclusive, “our general practice is to look next to the law of the circuit in which the state is located.”  Casey v. Merck & Co., 653 F.3d 95, 101 (2d Cir. 2011).
Most other federal courts have signed on to some version of this rule – recognizing that they aren’t strictly bound to respect a different circuit’s interpretation of one of that circuit’s states’ law, but recognizing that a great degree of deference to such decisions is a good idea.  See Schwartz v. Rent A Wreck America Inc., 468 Fed. Appx. 238, 250 (4th Cir. 2012) (following Factors).  Dawn Equipment Co. v. Micro-Trak Systems, Inc., 186 F.3d 981, 989 n.3 (7th Cir. 1999) (“normally” court “defers” to home court of appeals prediction); Mellon Bank, N.A. v. Ternisky, 999 F.2d 791, 796 (4th Cir. 1993) (adopting Factors); Jones Truck Lines v. Transport Insurance Co., 1989 WL 49517, at *5 (E.D. Pa. May 10, 1989) (adopting Factors).
Some cases, however, honor the deference rule mostly in the breach.  Independent Petrochemical Corp. v. Aetna Casualty & Surety Co., 944 F.2d 940, 944 (D.C. Cir. 1991) (recognizing that “potential for forum-shopping within the federal judicial system caused by intercircuit conflicts over the meaning of state law, and the assumption of expertise on the part of the home circuit, have led us to conclude that a home circuit’s view of state law is entitled to deference” but holding that Eighth Circuit had misapplied Missouri law); United States v. Maness, 23 F.3d 1006, 1008-09 (6th Cir. 1994) (recognizing “deference” as ordinary rule; concluding that Fourth Circuit decision had overlooked a relevant state supreme court decision).  And then there’s Zahn v. Yucaipa Capital Fund, 218 B.R. 656 (D.R.I. 1998), which as far as we can tell didn’t give any deference at all to a Ninth Circuit prediction of California law:

Binding interpretations of state laws are made by state supreme courts, not by federal circuit courts.  Thus, while the Ninth Circuit cases may be the controlling interpretation of California law in the federal courts of the Ninth Circuit, they are not controlling anywhere else.  Rather, they represent merely the Ninth Circuit’s prediction of how the California Supreme Court would decide the questions at hand.  This Court, sitting outside the Ninth Circuit, is not bound by Ninth Circuit precedent, but instead must make an independent determination of whether the California . . . supreme court[s] would adopt the reasoning and rule of the Ninth Circuit cases.

Id. at 666 n.11 (emphasis added).

So to summarize things, the rule seems to be that no, the Third Circuit’s predictions of Pennsylvania law aren’t binding in the strict sense because there’s no hierarchical structure constraining courts outside of this circuit.  However, as a practical matter, federal courts (most of them, anyway) outside of the Third Circuit will be inclined to give great deference to the conclusions of the Third Circuit on Pennsylvania law.

Finally, we also came across some other stuff we liked while writing this piece.  We include it because it supports our underlying point in prior posts about Pennsylvania district courts being obligated to follow the Third Circuit’s Pennsylvania law predictions, even if they don’t like them.  Not too long ago, the Seventh Circuit similarly had to put its foot down to quash similar reluctance by one of its district courts to follow one of its Erie predictions:

By treating [our Erie prediction] as having no more than persuasive force, the district court made a fundamental error.  In a hierarchical system, decisions of a superior court are authoritative on inferior courts. . . .  [D]istrict judges must follow the decisions of this court whether or not they agree.  A decision by a state’s supreme court terminates the authoritative force of our decisions interpreting state law, for under Erie our task in diversity litigation is to predict what the state’s highest court will do.  Once the state’s highest court acts, the need for prediction is past.  But decisions of intermediate state courts lack similar force; they, too, are just prognostications.  They could in principle persuade us to reconsider and overrule our precedent; assuredly they do not themselves liberate district judges from the force of our decisions.

Reiser v. Residential Funding Corp., 380 F.3d 1027, 1029 (7th Cir. 2004); see 17A Moore’s Federal Practice, §124.22[4] (3d ed. 2010) (“When a higher federal court has ruled on a particular point of state law, a lower court must ordinarily follow that decision in the absence of an intervening authoritative state decision.”).

And that, at least, is as it should be.