The Important Choice of Law Questions Lurking in Tomorrow's Stolen-Pissarro Argument

The applicability of Klaxon v. Stentor Electric Manufacturing -- no, wait! I promise it's important . . . .

Tomorrow the Supreme Court is supposed to hear argument in Cassirer v. Thyssen Bornemisza Collection Foundation. The facts are a somewhat dramatic story of a Pissarro painting looted by the Nazis that is now in a Spanish museum (here's a case preview by Suzanna Sherry). But the legal question presented is a technical question of choice of law: "Whether a federal court hearing state law claims brought under the [Foreign Sovereign Immunities Act] must apply the forum state's choice of law rules to determine what substantive law governs the claims at issue, or whether it may apply federal common law."

This implicates a classic federal choice-of-law case, Klaxon v. Stentor Electric Manufacturing, that I've written a bit about, so I wanted to offer a few thoughts.

Three points of background: In diversity cases, the Supreme Court generally applies state law, pursuant to the Rules of Decision Act which says that "The laws of the several states … shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply."

But where do they apply? This is answered by a field called choice of law, but what is the federal choice of law rule for these cases? In Klaxon, the Supreme Court said that "in diversity cases the federal courts must follow conflict of laws rules prevailing in the states in which they sit." I.e., the U.S. District Court for the Central District of California should apply whatever law a California state court law would apply. This might be California law or it might be another jurisdiction's law. Meanwhile a federal district court for the District of Nevada would apply different law—the law selected by the choice of law rules of Nevada's state courts—even though both are in the Ninth Circuit.

Finally, the Foreign Sovereign Immunities Act, which operates under federal question jurisdiction, says that a foreign state (Spain, here) "shall be liable in the same manner and to the same extent as a private individual under like circumstances."

Hence, the QP of whether Klaxon, the diversity case, extends to the FSIA. Okay, now my thoughts:

1: I think the question presented is confused. It is framed as a choice between the "forum state's choice of law rules" or a "federal common law" choice of law rule. But Klaxon, the source of the forum-state-choice-of-law doctrine, is itself a federal common law rule. Moreover, the Ninth Circuit's version of "federal common law" was just the Second Restatement of Conflicts, even though it's not at all obvious why the Second Restatement should be the federal common law rule if one does believe in a federal common law rule.

So the real question presented is apparently: since everybody seems to want to use federal common law to decide choice of law questions under the FSIA, which one should we use as the federal common law—the Klaxon rule or the Second Restatement?

2: As I argued in my article, there are often good reasons not to extend the Klaxon rule to federal question cases. In particular, under Klaxon you cannot know what the law is until a lawsuit is filed. This is a special kind of disaster for anybody who needs to apply the rule in advance of litigation, like the executive branch administering a federal statute. (It is not a coincidence that when the executive branch had to come up with a federal choice of law rule for federal statutes dealing with marriage, they didn't use Klaxon.)

3: That said, those reasons might not be present here.

3a: The executive branch is not complaining about having to apply Klaxon under the FSIA (though somebody should ask them why not).

3b: And maybe more importantly, the text of the FSIA provides some argument for using Klaxon. Klaxon is the common-law choice of law rule that would currently apply to private parties in federal court, because they would be present on diversity jurisdiction. If that counts as "like circumstances," then that's a good reason to apply Klaxon to an FSIA defendant.

3c: So assuming that Klaxon is correct, it may be appropriate to apply it here.

4: But that doesn't mean that it is always appropriate to use Klaxon in all federal question cases—that could be a disaster for executive administration of federal law. And it also doesn't mean Klaxon is correct in the first place—indeed, as an ipse dixit application of federal common law that broke with historical practice, there is plenty to criticize about it. But figuring out whether Klaxon was right and if not what to do with it is a big and hard question that receives almost no attention in the briefs. So hopefully the Court will at least manage to do no harm on that front.

In sum, it may well be that the Ninth Circuit should be reversed, but I also hope that the Court will avoid saying things about the correctness of Klaxon or its applicability to all federal statutory cases that it might later come to regret.