Court Opinion

ID: 8918176
Source: CourtListenerOpinion
Date Created: 2022-11-27 05:58:41.401853+00
Date Added: 2024-06-11T17:09:11.360201
License: Public Domain

SWYGERT, Senior Circuit Judge,
dissenting in part.
I dissent from that portion of the court’s decision concerning post judgment interest. Prior to 1982, the federal judgment interest statute provided for post judgment interest “at the rate allowed by State law.” Act of June 25, 1948, 62 Stat. 957 (formerly codified at 28 U.S.C. § 1961 (1976)). This statute was amended, effective October 1, 1982, to prescribe a federal rate of interest. Federal Courts Improvement Act of 1982, Pub.L. 97-164, § 302(a), 96 Stat. 25, 55-56 (codified at 28 U.S.C.A. § 1961(a) (Supp. 1983)).
Congress has only limited authority to dictate the law that applies in a federal court sitting in a diversity action. In Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78, 79, 58 S.Ct. 817, 822, 823, 82 L.Ed. 1188 (1938), the Supreme Court held that “Congress has no power to declare substantive rules of common law applicable in a State .... ‘Supervision over either legislative or the judicial action of the States is in no case permissible except as to matters by the Constitution specifically authorized or delegated to the United States.’ ” Accord Hanna v. Plumer, 380 U.S. 460, 471-72, 85 S.Ct. 1136, 1144-45, 14 L.Ed.2d 8 (1965); Bernhardt v. Polygraphic Co., 350 U.S. 198, 202, 76 S.Ct. 273, 275, 100 L.Ed. 199 (1956). Judgment interest is an item of substantive damages. See generally Restatement (Second) of Conflict of Laws § 171 comment C (1971). It is not clear whether the Constitution grants Congress the “power to declare” the rate of interest due on judgments in diversity eases in which the claims are based entirely upon state law. In any event, if Congress intended to override the authority of the states on this point, it would have done so in more explicit terms than are contained in the new judgment interest statute. Cf. Walker v. Armco Steel Corp., 446 U.S. 740, 750-51, 100 S.Ct. 1978, 1985-86, 64 L.Ed.2d 659 (1980) (relying upon absence of any indication that federal rule was intended to toll state statutes of limitations or displace state tolling rules in holding that state statute controlled). The new statute maintains the same language as the prior statute except for providing a federal rate of interest, and neither the statute nor the legislative history mention diversity actions despite the long line of cases holding that judgment interest is a matter of substantive law to be determined by the law of the forum state in a diversity action, see, e.g., Jarvis v. Johnson, 668 F.2d 740, 746-47 (3d Cir.1982); Budge v. Post, 643 F.2d 372, 375 (5th Cir.1981); Bauer v. Uniroyal Tire Co., 630 F.2d 1287, 1290 (8th *1388Cir.1980); Casto v. Arkansas-Louisiana Gas Co., 562 F.2d 622, 625 (10th Cir.1977).*
In Bernhardt v. Polygraphic, supra, the Supreme Court narrowly construed the United States Arbitration Act to avoid a similar constitutional question. Section 3 of the Act provided that in “any suit or proceeding ... brought in any court of the United States upon an issue referable to arbitration under any agreement in writing for such arbitration, the court ... shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement .... ” 9 U.S.C. § 3. State law, on the other hand, permitted revocation of an agreement to arbitrate at any time before an award was made. Respondent contended that federal law governed his motion for a stay of the diversity action in the district court. The Supreme Court stated:
If respondent’s contention is correct, a constitutional question might be presented. Erie R. Co. v. Tompkins indicated that Congress does not have the constitutional authority to make the law that is applicable to controversies in diversity of citizenship cases.... Our view ... is that § 3 so read, would invade the local law field. We therefore read § 3 narrowly to avoid the issue.
350 U.S. at 202, 76 S.Ct. at 275. Accordingly, the Court construed the federal Act to apply only to those transactions listed in the first two sections of the Act: transactions involving commerce and maritime activities. Id. at 201-02, 76 S.Ct. at 275. See also Walker v. Armco Steel Corp., supra, 446 U.S. at 748-53, 100 S.Ct. at 1984-86 (narrowly construing Fed.R.Civ.P. 3 and avoiding constitutional question).
I would follow the Supreme Court’s lead in Bernhardt, and construe the federal interest statute not to apply in diversity actions such as the one before the court, in which the claims are based solely upon state law. In the absence of a federal provision on point, the award of post judgment interest “is determined by referring to the law of the state in which the cause of action arose,” Bauer v. Uniroyal Tire Co., supra, 630 F.2d at 1290. I would direct the district court to apply Iowa law to determine both the prejudgment and postjudgment interest due Weitz.

 In these cases, the issue was whether to allow prejudgment interest in diversity actions since the federal statute did not provide for such interest. The courts unanimously held that state law governed the award of prejudgment interest. These cases are distinguishable from the present case insofar as state prejudgment interest laws presumably do not present a direct conflict with the federal statute, which is silent on the award of prejudgment interest, while state laws prescribing state rates of post-judgment interest presumably are in direct conflict with the federal statute, which now prescribes a federal rate of postjudgment interest. Nevertheless, congressional silence on the applicability of the new statute in diversity actions remains significant in light of this line of cases.