Opinion ID: 389522
Heading Depth: 1
Heading Rank: 2

Heading: which state's statute of limitations?

Text: 14 A. The Choice of Law Rules to be Applied in Choosing the Proper Statute of Limitations 15 Our starting point in this case, as in all cases in which subject-matter jurisdiction is premised on diversity of citizenship, is Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), in which the Supreme Court held that there is no federal general common law and that a federal court must apply the laws of the state in which it sits except in those cases governed by the Constitution or laws of the United States. Two of Erie's progeny are particularly relevant. In Guaranty Trust Co. v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945), the Court confirmed that the Erie doctrine extends to state statutes of limitations. And in Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), the Court confirmed that the Erie doctrine means also that as a general matter, a federal court is bound to apply the choice of law rules of the state in which it sits in determining whether that state's or some different state's substantive law should govern. 16 Together, these two cases mean that in diversity lawsuits, a federal court is ordinarily bound to look to the choice of law rules of the state in which it sits to determine whether the state courts of that state would apply their own state's statute of limitations or the statute of limitations of some other state. Baron Tube Co. v. Transport Insurance Co., 365 F.2d 858, 860 (5th Cir. 1966) (en banc). This principle may have significant practical effect in those cases in which the state courts of the state in which the federal court sits would apply the substantive law of another state, but would apply their own statute of limitations. 3 17 The differences between state and federal procedural rules have from time to time been the source of considerable confusion when federal courts have attempted to apply state statutes of limitations in diversity cases. For example, Fed.R.Civ.P. 4, rather than the analogous state procedural rule, governs the manner in which process is to be served on the defendants. Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965). By contrast, Fed.R.Civ.P. 3 provides that (a) civil action is commenced by filing a complaint with the court; yet this rule of federal procedure does not displace state rules which provide, for example, that for purposes of tolling state statutes of limitations, a suit is not commenced until service of summons on the defendant. Walker v. Armco Steel Corp., 446 U.S. 740, 100 S.Ct. 1978, 64 L.Ed.2d 659 (1980); Ragan v. Merchants Transfer & Warehouse Co., 337 U.S. 530, 69 S.Ct. 1233, 93 L.Ed. 1520 (1949); Anderson v. Papillion, 445 F.2d 841, 842 (5th Cir. 1971). 18 Once grasped, these propositions are not very difficult to apply in an ordinary case. Complications arise, however, when (as here) the case has been transferred to the court that must apply these propositions from another federal court in a different state. In such a case, the transferee federal court must decide whether to apply the choice of law rules of the state in which it sits, or the choice of law rules of the state in which the transferor court sits. As discussed below, the answer to this question conceivably could turn upon which party requested the transfer, the reasons behind the transfer, and the statute authorizing the transfer. 19 B. Choosing Between the Change of Venue Statutes 20 There are two federal statutes of general application under which a change of venue ordinarily may be made. The first provides as follows: 21 For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division in which it could have been brought. 22 28 U.S.C. § 1404(a) (1976). In addition to section 1404(a), which modifies the common-law doctrine of forum non conveniens by making transfer an alternative to dismissal, 4 there is section 1406(a), which provides as follows:The district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought. 28 U.S.C. § 1406(a) (1976). 5 23 If one reads the statutes to apply only to those instances in which the transferor court has personal jurisdiction over the defendant, sections 1404(a) and 1406(a) would appear to apply to two mutually exclusive situations: section 1404(a) would apply when venue is properly laid in the district in which the transferor court sits, and section 1406(a) would apply in all other instances. The statutes are most frequently used in precisely this manner. Both statutes, however, have been read by the courts in such a broad manner that considerations of venue and personal jurisdiction have become almost inextricably intertwined. 24 The source of the broad reading of both statutes is Goldlawr, Inc. v. Heiman, 369 U.S. 463, 82 S.Ct. 913, 8 L.Ed.2d 39 (1962). Goldlawr was a private antitrust action filed in federal court in Pennsylvania. Both venue and personal jurisdiction in antitrust cases are governed by section 12 of the Clayton Act, 15 U.S.C. § 22 (1976); when that section was applied to the facts in Goldlawr, however, it was clear that both venue was improper and personal jurisdiction was lacking in Pennsylvania. The district court transferred the case under section 1406(a) to a federal court sitting in New York, where both venue was proper and personal jurisdiction could be obtained. The defendants subsequently contended that the transfer was invalid because the transferor court lacked personal jurisdiction; the transferee court and the Second Circuit agreed. 25 The Supreme Court reversed, holding that section 1406(a) transfers are not limited to those cases in which the transferor court has personal jurisdiction over the defendants: 26 The language of § 1406(a) is amply broad enough to authorize the transfer of cases, however wrong the plaintiff may have been in filing his case as to venue, whether the court in which it was filed had personal jurisdiction over the defendants or not. The section is thus in accord with the general purpose which has prompted many of the procedural changes of the past few years that of removing whatever obstacles may impede an expeditious and orderly adjudication of cases and controversies on their merits. 27 369 U.S. at 466-67, 82 S.Ct. at 915-16. Justice Harlan dissented. He argued that it was 28 incongruous to consider, as the Court's holding would seem to imply, that in the interest of justice Congress sought in § 1406(a) to deal with the transfer of cases where both venue and jurisdiction are lacking in the district where the action is commenced, while neglecting to provide any comparable alleviative measures for the plaintiff who selects a district where venue is proper but where personal jurisdiction cannot be obtained. 29 Id. at 468, 82 S.Ct. at 916 (Harlan, J., dissenting) (emphasis in original; footnote omitted). In footnote, Justice Harlan illustrated this proposition by postulating an ordinary diversity case in which venue was proper in the district wherein suit was brought because the plaintiff resided in that district, but personal jurisdiction could not be obtained. Since this would not be 'a case laying venue in the wrong division or district,' § 1406(a) would be inapplicable. Id. at 468 n., 82 S.Ct. at 916 n. 30 A great many of the lower federal courts that have subsequently interpreted section 1406(a) have avoided the incongruous results suggested by Justice Harlan by holding that a section 1406(a) transfer is proper in exactly the situation in which Justice Harlan assumed it would not be. 6 The leading case is Dubin v. United States, 380 F.2d 813 (5th Cir. 1967). Dubin was a suit for unpaid taxes that was filed in federal court in Ohio. Although venue was proper in Ohio, since that was the state in which the tax return had been filed and in which the liability had accrued, the Ohio court could not obtain personal jurisdiction over the defendant because he had moved to Florida. Because the government was precluded by the applicable statute of limitations from bringing a new suit in Florida, the federal court in Ohio transferred the case under section 1406(a) to a federal court in Florida. This court concluded that the transfer was authorized by section 1406(a) despite the fact that venue was proper in Ohio: 31 The statute does not refer to wrong venue, but rather to venue laid in a wrong division or district. We conclude that a district is wrong within the meaning of § 1406 whenever there exists an obstacle (to) an expeditious and orderly adjudication on the merits. Inability to perfect service of process on a defendant in an otherwise correct venue is such an obstacle. 32 Id. at 815 (quoting Goldlawr, 369 U.S. at 466, 82 S.Ct. at 915; bracketed portion and ellipsis inserted by Dubin court). Accord, Mayo Clinic v. Kaiser, 383 F.2d 653, 655-56 (8th Cir. 1967); Taylor v. Love, 415 F.2d 1118, 1120 (6th Cir. 1969), cert. denied, 397 U.S. 1023, 90 S.Ct. 1257, 25 L.Ed.2d 533 (1970); Martin v. Stokes, 623 F.2d 469, 474 (6th Cir. 1980). See also Atkins v. Schmutz Manufacturing Co., 401 F.2d 731, 736 & n. 7 (4th Cir. 1968) (Craven, J., dissenting) (accepting Dubin's rationale), modified on rehearing en banc, 435 F.2d 527 (6th Cir. 1970), cert. denied, 402 U.S. 932, 91 S.Ct. 1526, 28 L.Ed.2d 867 (1971). 33 Some commentators have criticized the Dubin rationale for blurring the distinction between improper venue and inability to obtain personal jurisdiction; while agreeing that the results reached under the Dubin rationale are sound, the commentators argue that for purposes of analytical clarity, courts should apply section 1404(a) instead of section 1406(a) when venue is proper in the transferor district but personal jurisdiction over the defendant cannot be obtained. 7 34 Various courts, including on occasion this one, have done exactly that. Prior to Dubin, in Koehring Co. v. Hyde Construction Co., 324 F.2d 295, 297-98 (5th Cir. 1963), this court reasoned by analogy from Goldlawr in holding that a section 1404(a) transfer could properly be made despite the fact that the transferor court lacked personal jurisdiction over the defendant. Accord, United States v. Berkowitz, 328 F.2d 358, 361 (3d Cir.), cert. denied, 379 U.S. 821, 85 S.Ct. 42, 13 L.Ed.2d 32 (1964); Smith v. Peters, 482 F.2d 799, 802-03 (6th Cir. 1973), cert. denied, 415 U.S. 989, 94 S.Ct. 1587, 39 L.Ed.2d 886 (1974). 8 Dubin did not cite our previous decision in Koehring, but criticized Berkowitz for relying on section 1404(a) since that section operates when there are two (or more) forums where a suit could be brought and where it could proceed. 380 F.2d at 816 (emphasis added). Under the Dubin rationale, by contrast, section 1406(a) is available when(ever) there exists an obstacle either incorrect venue, absence of personal jurisdiction, or both to a prompt adjudication on the merits in the forum where (the suit was) originally brought. Id. 35 Faced with this nearly hopeless muddle of conflicting reasoning and precedent, the Second Circuit, in a scholarly and well-researched opinion that is nonetheless somewhat ambiguous, declined to decide which of sections 1404(a) and 1406(a) is the proper basis for transfer in cases in which the transferor court lacks personal jurisdiction over the defendant. The Second Circuit, reading the two sections together, placed a judicial gloss on the statutory language, thereby curing Congress' defective draftsmanship; under that gloss, it was sufficient to hold that a transferor court  'has power to transfer the case even if there is no personal jurisdiction over the defendants, and whether or not venue is proper in (the) district, if a transfer would be in the interest of justice.'  Corke v. Sameiet M.S. Song of Norway, 572 F.2d 77, 80 & n. 9 (2d Cir. 1978) (quoting Volk Corp. v. Art-Pak Clip Art Service, 432 F.Supp. 1179, 1181 (S.D.N.Y. 1977); bracketed portion inserted by Second Circuit). 36 Nonetheless, it remains the rule in this circuit that a transfer to a district in which personal jurisdiction over the defendant can be obtained may properly be made under either section 1404(a) or section 1406(a). Aguacate Consolidated Mines, Inc. v. Deeprock, Inc., 566 F.2d 523, 524-25 (5th Cir. 1978) (citing both Dubin and Koehring). 37 C. Choosing Between the Choice of Law Rules of the States in Which the Transferor and Transferee Courts Sit 38 As pointed out above in part II-A of this opinion, the process of deciding which state's statute of limitations should be applied in a diversity case becomes considerably more complicated when the district court making that decision is not the district court in which the case was originally filed. If the case has been transferred from a district court in one state to a district court in another state, the transferee court must first decide which state's choice of law rules it should apply in determining which state's statute of limitations should be applied. In some cases the outcome of the litigation may well hinge on this inquiry. Unfortunately, there is precious little guidance from the Supreme Court, and very little consistency among the lower courts and the commentators, on this topic. 39 The Supreme Court has spoken on the choice of law issue that arises in connection with one type of transfer under section 1404(a). In Van Dusen v. Barrack, 376 U.S. 612, 84 S.Ct. 805, 11 L.Ed.2d 945 (1964), the Court held that when a case that had properly been filed in one district court was transferred under section 1404(a) at the motion of the defendant to another district court in a different state, the transferee court was bound to apply the law that would have been applied by the state courts of the state in which the transferor court sat: 40 (W)e should ensure that the accident of federal diversity jurisdiction does not enable a party to utilize a transfer to achieve a result in federal court which could not have been achieved in the courts of the State where the action was filed. This purpose would be defeated in cases such as the present if nonresident defendants, properly subjected to suit in the transferor State (Pennsylvania), could invoke § 1404(a) to gain the benefits of the laws of another jurisdiction (Massachusetts) (I)n applying the (reasoning of Erie ) to § 1404(a), the critical identity to be maintained is between the federal district court which decides the case and the courts of the State in which the action was filed. 41 We conclude, therefore, that in cases such as the present, where the defendants seek transfer, the transferee district court must be obligated to apply the state law that would have been applied if there had been no change of venue. A change of venue under § 1404(a) generally should be, with respect to state law, but a change of courtrooms. 42 Id. at 638-39, 84 S.Ct. at 820-21 (emphasis added; footnotes omitted). The Van Dusen Court specifically reserved, however, the question whether the same considerations would govern if a plaintiff sought transfer under § 1404(a). Id. at 640, 84 S.Ct. at 821. 43 On cases whose facts closely parallel those of Van Dusen i. e., transfers under section 1404(a) upon the motion of a defendant over whom the transferor court has personal jurisdiction the lower courts have had comparatively little difficulty in determining the proper statute of limitations to apply. Loughan v. Firestone Tire & Rubber Co., 624 F.2d 726, 728-30 (5th Cir. 1980) (per Lynne, District Judge, sitting by designation), is a fine example of how this analysis should be conducted and the difference it can make in the outcome of a case. 9 But what of transfers under section 1404(a) when the transferor court lacks personal jurisdiction over the defendant? What of section 1404(a) transfers made upon motion of the plaintiff, or upon the court's own motion? And what of transfers under section 1406(a)? 44 Some commentators have suggested that the inverse of the Van Dusen rule should apply when a section 1404(a) transfer is on the plaintiff's motion. The Court in Van Dusen did not decide what law applies after a transfer on plaintiff's motion, but it seems that the law of the transferee state should control. 15 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 3846 (1976) (footnotes omitted). The Sixth Circuit appears to have taken this position at one time, Carson v. U-Haul Co., 434 F.2d 916 (6th Cir. 1970), but apparently has abandoned that view, of which more later. Professor Moore suggests that the analysis should be more complex than a simple determination of which party moved for transfer: 45 When the venue is proper in the transferor district, and service can be obtained there, there appears to be no technical reason why the transfer may not be made, and whatever dissembling is involved in seeking both the most favorable law and the most convenient forum, the plaintiff does not seek the application of the law of a state that he could not obtain. In such a case, then, it appears that the Van Dusen rules should apply after such a transfer 46 When the venue in the district in which the action is brought is proper, but service of process cannot be had there, different considerations apply. In such a situation plaintiff could not maintain his action in the district in which he filed it, and therefore could not take advantage of the law governing that district, since he could not obtain jurisdiction of the defendant. Therefore he should not be permitted to file his action there for the purpose of capturing the law of that jurisdiction for transportation to the jurisdiction in which service can be obtained. 47 1 J. Moore, Federal Practice P 0.145(4. 5), at 1608-09 (2d ed.1980) (footnotes omitted). Professor Moore continues by noting that the courts have generally resisted efforts to capture the choice of law rules of a state in which the plaintiff could not have prosecuted his suit to a successful completion, citing Parham v. Edwards, 346 F.Supp. 968, 971-73 (S.D.Ga.1972), aff'd per curiam, 470 F.2d 1000 (5th Cir. 1973) (affirming for reasons sufficiently stated by the District Court). 10 48 A recent Sixth Circuit opinion interprets sections 1404(a) and 1406(a) in such a manner as to produce precisely the result suggested by Professor Moore. In Martin v. Stokes, 623 F.2d 469 (6th Cir. 1980), that court reaffirmed its previous adoption in Taylor v. Love of the Dubin rationale: 49 The law in this Circuit, therefore, is that § 1406(a) provides the basis for any transfer made for the purpose of avoiding an obstacle to adjudication on the merits in the district court where the action was originally brought. That defect may be either improper venue or lack of personal jurisdiction. This construction of § 1406(a) necessarily limits the application of § 1404(a) to the transfer of actions commenced in a district court where both personal jurisdiction and venue are proper. 50 623 F.2d at 474. The court then held that the law to be applied following the transfer of an action depends solely upon the nature of the transfer. Id. In this regard, the court discussed the reasoning behind Van Dusen in concluding that (s)ince a transfer under § 1404(a) represents only a change in courtrooms for the convenience of the litigants and witnesses, it should not affect the state law governing the action. Id. at 471-72. 51 Once a plaintiff has exercised his choice of forum under § 1404(a), the state law of that forum should govern the action, regardless of the wisdom of the plaintiff's selection. Thus, no matter who seeks to transfer the action to a more convenient forum under § 1404(a), the state law of the forum in which the action was originally commenced remains controlling. 52 Id. at 473. The court reached the opposite conclusion with respect to transfers under section 1406(a): 53 A transfer under § 1406(a) is based not on the inconvenience of the transferor forum but on the impropriety of that forum. If the state law of the forum in which the action was originally commenced is applied following a § 1406(a) transfer, the plaintiff could benefit from having brought the action in an impermissible forum. Plaintiffs would thereby be encouraged to file their actions in the federal district court where the state law was the most advantageous, regardless of whether that district court was a proper forum Accordingly, we conclude, as have the majority of authorities that have considered this question, that following a transfer under § 1406(a), the transferee district court should apply its own state law rather than the state law of the transferor district court. 54 Id. at 472 (citations omitted). 55 Were we not bound by our circuit's prior decisions in Koehring and Aguacate Consolidated Mines, we would be inclined to follow the compelling logic of the Sixth Circuit's decision in Martin v. Stokes. But under those prior Fifth Circuit decisions, which a panel of this court is not free to overrule, section 1404(a) is an appropriate means for transfer when the transferor court cannot obtain personal jurisdiction over the defendants. Nonetheless, we believe that practical results identical to those dictated by Martin v. Stokes can be achieved without doing violence to the prior precedent of our circuit. 56 In the case at bar, it is impossible to tell from the record before us whether the transfer occurred pursuant to section 1404(a) and Koehring or pursuant to section 1406(a) and Dubin. Accordingly, we must determine which state's choice of law rules should be applied under each. 57 We fully agree with the analysis of Martin v. Stokes on the question of which state's choice of law rules should be applied after a section 1406(a) transfer. For the reasons stated in that case, we hold that following a section 1406(a) transfer, regardless of which party requested the transfer or the purpose behind the transfer, the transferee court must apply the choice of law rules of the state in which it sits. 58 For substantially the reasons stated by the Sixth Circuit in Martin v. Stokes and by Professor Moore in the excerpt quoted above, we hold that following a section 1404(a) transfer from a district in which personal jurisdiction over the defendant could not be obtained, the transferee court must apply the choice of law rules of the state in which it sits, regardless of which party requested the transfer. This result, as explained by Professor Moore and the Sixth Circuit, is fully consonant with the purposes underlying the Erie doctrine. Indeed, a contrary result may be constitutionally proscribed, although we express no opinion on that question. See Reyno v. Piper Aircraft Co., 630 F.2d 149, 164-65 (3d Cir. 1980), cert. granted, -- U.S. --, 101 S.Ct. 1346, 67 L.Ed.2d 333 (1981). 11 The result of our holding will be to ensure that the 'accident' of federal diversity jurisdiction does not enable a party to utilize a transfer to achieve a result in federal court which could not have been achieved in the courts of the State where the action was filed. Van Dusen, 376 U.S. at 638, 84 S.Ct. at 820. We are not presented with, and need not resolve, the question of which state's choice of law rules should be applied when, upon the motion of a plaintiff a section 1404(a) transfer has been made from a district in which venue was proper and personal jurisdiction over the defendant had been or could have been obtained. 59 Applying this holding to the case at bar, we note that it is undisputed that the transferor court in Arkansas was unable to obtain personal jurisdiction over any of the defendants. Therefore, regardless of whether the transfer was pursuant to section 1404(a) or section 1406(a), the applicable choice of law rules are those of the state in which the transferee court sits i. e., Texas. D. Texas' Choice of Law Rules 60 When confronted with a lawsuit in which the substantive law of another jurisdiction is to be applied, Texas courts will most often apply their own state's statute of limitations; this general principle is based on the theory that the foreign jurisdiction's statute of limitations is most often part of its procedural, rather than substantive, law. The exception to this general principle arises when the foreign jurisdiction's statute creates a right and also incorporates a limitation upon the time within which the suit is to be brought; in this situation, the limitation qualifies the right so that it becomes part of the substantive law rather than procedural, and unless suit is brought within the time allowed by (the foreign state's) statute no right of action can be maintained even though the law of (Texas) provides for a longer period of limitations. California v. Copus, 158 Tex. 196, 201, 309 S.W.2d 227, 231, cert. denied, 356 U.S. 967, 78 S.Ct. 1006, 2 L.Ed.2d 1074 (1958). See also Franco v. Allstate Insurance Co., 505 S.W.2d 789, 792 (Tex.1974); Gaston v. B. F. Walker, Inc., 400 F.2d 671, 673 (5th Cir. 1968) (applying Texas law). See generally R. Weintraub, Commentary on the Conflict of Laws 48-53 (1971); 53 C.J.S. Limitations of Actions §§ 27, 29, 30 (1948 & 1980 Supp.). But of course, this exception to the general rule that the forum state's statute of limitations governs can have no application to the case at bar if Texas courts would have applied their own state's substantive law had the case been brought originally in the Texas courts. That is, before the Texas courts could conceivably apply the Arkansas statute of limitations, they would first have to find that Arkansas' substantive laws governed the contours of the cause of action. 61 In an opinion written by then-Texas Supreme Court Justice Sam D. Johnson shortly before he became a member of this court, Texas abolished the common law doctrine of lex loci delicti, under which the law of the place where the wrong occurred dictated the substantive rights of the parties. In place of lex loci delicti, Texas explicitly adopted the most significant relationship test as enunciated in the Restatement (Second) of Conflicts. 12 Gutierrez v. Collins, 583 S.W.2d 312, 318-19 (Tex.1979). 62 Applying this test to the case at bar, we are convinced that the Texas courts would apply their own state's substantive law in defining the relative rights of the parties. In both quantitative and qualitative terms, Texas bears a more significant relationship to this litigation than does any other forum. Both the injury and the conduct that allegedly gave rise to the injury occurred in Texas; the business relationship between the parties was centered in Texas; and the defendants have a place of business there. By contrast, the only contact that Arkansas has with the matter is through the plaintiff's residence there. We hold that Texas' substantive law governs both causes of action; accordingly, there is no question but that Texas courts would apply their own state's statute of limitations. 63 The district court erred, then, in assuming that Arkansas' three-year statute of limitations applied. We therefore need not decide whether the court was correct in its interpretation of Arkansas law. The question remains, however, whether Ellis' suit is barred under Texas law. 64