Opinion ID: 4033619
Heading Depth: 2
Heading Rank: 2

Heading: Source of Federal Common Law

Text: Given that different authorities point to different outcomes, it is not surprising that the parties are at loggerheads over which we should consider. Appellees suggest that we ignore federal common law and simply apply the law of the state in which the assignment was made, or, in the alternative, that federal common law requires us to conduct what amounts to a fifty-state survey of the rules governing assignments in each state and then apply the most common rule. In contrast, Appellants urge that we apply the Second Restatement of Contracts, which they contend does not require consideration for a valid assignment. We can dispense with Appellees’ proposed alternatives in short order: one contravenes our case law and the other is unworkable. Appellees’ proposal that we apply the law of the state in which the assignment was made is one we have 18 expressly rejected in the past for reasons that are just as sound today. As we observed in Gulfstream, “assignments of antitrust claims cannot appropriately be left to determination under possibly differing state law standards.” 995 F.2d at 438. There, we declined to apply state law, explaining that because “federal common law governs the assignment of an antitrust cause of action, there is no issue as to what state’s law would apply.” Id. at 437 n.1. We likewise reject Appellees’ fifty-state survey approach as inefficient, unreliable, and subject to manipulation. In practice, it would have litigants and courts reinvent the wheel for every contract-related question arising under federal common law by conducting nationwide surveys and attempting to characterize the vagaries of state law in existence at any given time. The inconsistent results would not only generate uncertainty for would-be assignors and consternation for courts attempting to apply precedent, but also would run contrary to the twin rationales we identified in Gulfstream for applying federal common law to antitrust claim assignments in the first place—ensuring the law accords with the “overall purposes of the antitrust statutes” and avoiding a patchwork of standards. Id. at 438. 12 12 Appellees’ reliance on In re Columbia Gas Systems Inc., 997 F.3d 1039, 1055 (3d Cir. 1993), for the proposition that we hew closely to state law so as to protect litigants’ “commercial expectations” reflects, at best, a misreading of that case. The discussion Appellees cite was our recitation of the Supreme Court’s test for ascertaining when to apply federal common law in the first instance, id. (citing United States v. Kimbell Foods, Inc., 440 U.S. 715, 727-78 (1979)), not a test for how to fashion federal common law thereafter. 19 Indeed, this appeal is illustrative of the shortcomings of this approach, with both sides having submitted lengthy and dueling appendices that purport to catalogue the applicable rule for each state with contradictory results. Moreover, while the parties and their able counsel here had the resources to undertake this laborious task, for some assignees, such a project may prove a disincentive to bringing suit—one of the very hazards the Supreme Court sought to avoid in adopting the direct purchaser rule. Ill. Brick, 431 U.S. at 745-47. In contrast, Appellants’ proposal that we look to the Restatement of Contracts as a starting point for fashioning rules of federal common law finds support in our case law and the twin aims of Gulfstream. As the American Law Institute explained when it first launched the Restatement of Contracts in 1932, “the Restatement of this and other subjects” was designed to serve “as prima facie a correct statement of what may be termed the general common law of the United States,” notwithstanding “instances in which the law in one or more States may vary from the law stated in a particular section.” Restatement (First) of Contracts, Introduction (Am. Law Inst. 1932). And in the decades since, that aspiration has been realized with the Restatement functioning not only as an authoritative fifty-state survey of contract law, offering a consistent point of reference to parties and courts, but also as a proposed “correct statement,” Here, Gulfstream already dictates that we apply federal common law, rendering the considerations in Columbia Gas Systems inapposite. 20 reflecting a synthesis and analysis of that law and the consensus of the states. 13 For those reasons, we have looked to the Restatement in the past when applying the federal common law of contracts generally, and the law of antitrust assignments specifically. In Livingstone v. North Belle Vernon Borough, 91 F.3d 515, 525-26 & n.11 (3d Cir. 1996), for example, we applied the federal common law of contracts in a suit brought under 42 U.S.C. § 1983 and cited to the Restatement (Second) 13 Indeed, the very cases upon which Appellees rely to advance their fifty-state survey approach cut in favor of applying the Restatement. As Appellees note, in Smith Land & Improvement Corp. v. Celotex Corp., 851 F.2d 86, 92 (3d Cir. 1988), we observed that “[t]he general doctrine of successor liability in operation in most states should guide the” district court in defining the federal common law relevant to that case on remand. While we left it to the district court to make that determination in the first instance, we did discuss the general precepts of successor liability and, in doing so, referenced only treatises on corporate law, id. at 91, close cousins of the Restatement. Moreover, while Appellees cite to a recent Fifth Circuit case in which the court described its application of the federal common law of contracts as adhering to “the core principles of the common law of contracts that are in force in most states,” Excel Willowbrook, L.L.C. v. JP Morgan Chase Bank, Nat’l Ass’n, 758 F.3d 592, 597 (5th Cir. 2014) (quoting Smith v. United States, 328 F.3d 760, 767 (5th Cir. 2003)), the court went on to identify those very principles by citing directly to the Restatement of Contracts, id. at 597 n.8. 21 of Contracts for the proposition that the duty of good faith and fair dealing exists at federal common law. And in In re Fine Paper Litigation, we concluded that the Restatement of Contracts was “in accord” with the “general law” applicable to assessing the effect of one party’s assignment of its antitrust claims to another. 632 F.2d at 1091. 14 Using the Restatement as a guidepost to define federal common law concerning the validity of assignments of antitrust claims also comports with one of the twin aims of Gulfstream: promoting national uniformity. 995 F.2d at 438. The Restatement eliminates the risk of courts reaching inconsistent conclusions about the consensus of state law, supplants the need for a would-be assignor or assignee to conduct her own fifty-state survey before assigning an antitrust claim to ensure it will be enforceable in federal court, and sets a baseline from which litigants may operate when challenging or defending the validity of such an assignment. This state of affairs is exactly what Gulfstream envisioned a federal rule would provide. 14 Rather than consider the Restatement or the proper source of federal common law, the District Court noted that In re Fine Paper Litigation itself cited to a district court case called Mercu-Ray Industries, Inc. v. Bristol-Myers Co., 392 F. Supp. 16, 18 (S.D.N.Y.), aff’d, 508 F.2d 873 (2d Cir. 1974), which posited that consideration may be relevant to the assignment of an antitrust claim; upon inspection, however, the district court in that case merely noted that issues such as the giving of consideration were not even challenged in that case. In other words, Mercu-Ray Industries sheds no light on the federal common law of contracts. 22 In sum, we agree with Appellants that the Restatement carries persuasive force in defining our federal common law, but we also caution that it serves only as a starting point. Gulfstream instructs not only that we avoid a patchwork of state standards, but also that we craft federal common law that pursues the “overall purposes of the antitrust statutes.” Id. For that reason, before adopting the Restatement’s approach to a given legal question as federal common law, we must confirm that the proposed rule comports with the underlying purpose and goals of federal antitrust law as outlined in Illinois Brick. 15 We thus turn to the Restatement and the policy rationales undergirding the direct purchaser rule to determine whether bargained-for consideration is required for an assignment of an antitrust claim to have legal effect.