I let this case slip under the radar but given that it falls so squarely within my Erie/conflicts interests, I thought I would briefly spell out how I think it should be analyzed. I just listened to the oral argument and looked at the briefs and this is my take.
A Holocaust survivor brings a suit against an instrumentality of the Kingdom of Spain under non-federal law in federal court in California. The ability to sue the Kingdom (by overcoming sovereign immunity) is provided by a federal statute, the Foreign Sovereign Immunity Act (FSIA). FSIA also gives federal courts jurisdiction over such actions. A choice-of-law question arises: does California or Spanish law apply? But that choice-of-law question brings up a choice-of-choice-of-law question: whose choice-of-law rules should the federal court use: California’s or should it come up with federal ones?
Let me get one thing out of the way. FSIA states that if a suit against a foreign nation is allowed the nation “shall be liable in the same manner and to the same extent as a private individual under like circumstances.” § 1606. I don’t really see how this answers the choice-of-law question. Rather, it just states that once there’s no sovereign immunity the nation needs to be considered like a private individual. It’s not special anymore. The only way this provision might be relevant to the choice-of-law issue is if the forum state had some choice-of-law rule that treated nations differently from private individuals. Klaxon, if it’s relevant, might be understood as overridden by 1606, to the extent that the forum state's choice-of-law rules treated nations as special. But that’s not really an issue in the case.
Now had this case been in federal court under diversity jurisdiction, the choice-of-law question would have been easy: under Klaxon, California’s choice-of-law rules should be used. But this case is not in federal court under diversity jurisdiction. It therefore brings up the knotty problem of choice of law in federal court for non-federal actions under jurisdictional statutes other than diversity, like supplemental jurisdiction, bankruptcy, statutory interpleader, or the Class Action Fairness Act. To answer this question, we must go back to first principles: why is it that Klaxon applies in diversity? What is its source?
The answer is most emphatically not the Rules of Decision Act. I refer the reader to my Twin Aims of Erie article for why not (see pp. 1888-90). But, most fundamentally, the RDA is actually a reception statute. When Virginia declared independence from Great Britain it passed a statute that sounded a lot like the RDA, which said that the rule of decision in Virginia courts, in the absence of Virginia statutory law to the contrary, is English common law. That hardly meant that Virginia courts had no power to develop common law rules that were contrary to English common law. It just got the common law going (again) in Virginia. After that Virginia courts could create all the deviation from English common law they wanted.
After the United States was created through the ratification of the Constitution, Congress created lower federal courts through the Judiciary Act. The Act included the RDA, which received the common law. The RDA did not have to receive English common law, because there was already the common law of the several states in place. So the RDA received that. That got the common law going in federal courts. But it no more prohibited federal courts from developing common law that deviated from the law of the several states than Virginia’s reception statute prohibited Virginia courts from developing common law that deviated from the law of England. The RDA just does not answer the question of federal courts’ power to create common law (including the common law of choice of law) in the absence of federal statutory law.
Klaxon is instead based in the twin aims of Erie, a policy that a federal court sitting in diversity and making decisions about procedure in cases where federal enacted law (that is, the federal constitution, federal statutes, or federal rules of civil procedure) does not apply should not come up with rules that are so different from those of a forum state that they lead to forum shopping and the inequitable administration of the laws. The twin aims are not absolute – they can be overridden by countervailing federal interests of sufficient weight in favor of an independent uniform federal rule.
But where does this policy of the twin aims come from? The answer is the diversity statute itself. Diversity jurisdiction exists to solve a problem with state court jurisdiction, namely the fact that there might be prejudice in state court against out-of-staters. And disuniformity between federal common law procedure and forum state procedure would frustrate the protective purposes of diversity jurisdiction. An out-of-state party who was worried about state court bias might not take advantage of federal court because of unfavorable federal procedure there. Or an out-of-state party who was not worried about state court bias might take advantage of federal court for the wrong reasons, namely because of favorable federal procedure.
Klaxon follows from the twin aims. There is no federal enacted law telling federal courts how to handle choice of non-federal law in diversity cases, so federal courts should come up with their own rules. But when they do, they should make sure that there will not be vertical forum shopping. Borrowing the forum state’s choice-of-law rules solves that problem. Occasionally countervailing federal interests are sufficient to displace Klaxon in diversity cases, and the act of state doctrine is an example.
I have argued in the Twin Aims of Erie that the forum state’s choice of law rules should be borrowed by federal courts when the non-federal action is in federal court under supplemental jurisdiction (see pp. 1919-21). I have also argued that the Klaxon question is more complicated when the non-federal action is in federal court under bankruptcy jurisdiction. There an independent uniform federal choice-of-law approach should be used, at least in some cases (pp. 1922-34). So the question is what should happen when the non-federal action is in federal court under FSIA.
An argument similar to diversity jurisdiction might be made concerning FSIA. FSIA gives parties the choice of federal court because of a perceived problem with state court jurisdiction (bias against the foreign state?) and vertical procedural uniformity is needed in order to assure that this jurisdictional purpose is vindicated. A party worried about the problem in state court might not seek federal protection because of disadvantageous federal procedure. And a party not worried about the problem in state court might seek out the federal forum for the wrong reason, namely because of advantageous federal procedure. This gives a federal court entertaining a non-federal action under FSIA a reason to mimic the choice-of-law rules of the forum state. Furthermore, the second of the twin aims, concerning the inequitable administration of the laws, is also relevant. Once again, I refer the reader to my Twin Aims paper (see pp. 1896-1900) about this second aim.
Sure, there would be a reason not to borrow the forum state's choice-of-law rules if Congress's worry about state courts concerned the way they make choice-of-law decisions in suits against nations. In connection with the Class Action Fairness Act, there is an argument the Congress was dissatisfied with the choice-of-law approaches of state courts and therefore Klaxon does not apply under that jurisdictional statute. But I don’t really see anything in FSIA jurisdiction that is tied to a worry about state choice of law. And that means that there’s simply no reason for a federal court to deviate from the choice-of-law decisions of the forum state. The only exception would be, once again, if the forum state's choice-of-law rules treated nations as special in a way that was contrary to 1606 or if there were some special federal interests concerning foreign relations of the sort that needed to be taken into account in choice of law. The act-of-state doctrine, again, is an example. But I don’t see anything like that here. So Klaxon should apply.