Concept
Transfers and Choice of Law
Which state's law applies
Transfers and Choice of Law
Klaxon assumes that a diversity case stays in the courthouse where the plaintiff filed it. Federal law, however, lets a case move from one district to another, and a move across a state line leaves the receiving court with a question Klaxon did not answer: should it follow the conflicts rules of the state where the plaintiff sued, or those of the state where the case has landed? The question matters because the choice of governing law in a federal diversity case goes to the heart of the relationship between the federal and state governments,1 and two states can select different substantive law for the same dispute.
The answer depends on why the case moved, and one idea organizes all three situations in this unit: whether the plaintiff's original choice of forum was legitimate. Erie itself objected to a system in which a plaintiff of diverse citizenship could choose between state and federal law by selecting the forum,2 and the transfer cases ask whether a later move should reward or undo a forum choice. A plaintiff who sues where venue and personal jurisdiction are proper has made a choice the law permits, and that forum's conflicts rules stay with the case through a convenience transfer. A plaintiff who sues where the case never belonged made no such choice, so the receiving court applies its own state's rules. A plaintiff who sues in breach of a valid forum-selection clause stands in the same position, because the contract gave the choice away. The convenience transfer comes first, because it sets the baseline against which the other two are measured.
Convenience Transfers
Section 1404(a) permits a district court to move a properly filed civil action to another district for the convenience of parties and witnesses and in the interest of justice, but the statute does not say which law the receiving court, called the transferee court, must apply. Van Dusen v. Barrack supplied the answer: a section 1404(a) transfer should effect a change of court but not a change of law.3 The transferee court applies the law the transferor court would have applied had the case stayed where it was filed. Because Klaxon required the transferor court to mimic the state courts of its own state, that law includes the transferor state's choice-of-law rules.4
The Van Dusen plaintiffs brought wrongful death claims in a federal court in Pennsylvania, and the defendants sought a transfer to Massachusetts.5 Convenience was not the defendants' only reason to prefer that courtroom. The Massachusetts statute capped damages at $20,000 per decedent and tied liability to the defendant's culpability, while Pennsylvania law set no cap and treated wrongful death damages as purely compensatory. Recovery under Pennsylvania law might be substantial in each case, and recovery under Massachusetts law might not even equal the expenses of litigation.6 Everything therefore turned on which law the Massachusetts court would apply after the transfer.
The Supreme Court refused to let a transfer do that work. The plaintiffs had the right to sue in Pennsylvania and had done so, so the Massachusetts court must choose whatever law the Pennsylvania federal court would have chosen.7 Put more cynically, the transferee court honors the plaintiffs' forum-shopping choice instead of letting the defendants displace it through transfer.8
Two features of the transfer power explain why the original forum's law survives the move. A plaintiff who files in a proper forum exercises a venue privilege and holds the state-law advantages that accompany it,9 and a convenience transfer assumes that nothing was wrong with the first forum. The transfer decision also rests on discretionary factors such as witnesses, documents, and efficiency, none of which says anything about which state's law should govern. If a transfer also exchanged conflicts rules, a defendant who won a convenience motion would collect better governing law as a side effect, and the motion would be worth filing for that reason alone. Keeping the transferor's rules in place removes that payoff.
What travels with the case is the transferor's method of choosing law, not the transferor state's substantive law. In Van Dusen, the Massachusetts cap would govern only if Pennsylvania's conflicts rule pointed to Massachusetts law. If that rule pointed to Pennsylvania law, the Massachusetts judge would apply Pennsylvania's uncapped damages rule in a Massachusetts courtroom.10 The transferee judge therefore reasons from the transferor's seat, in four steps.
The same rule governs when the plaintiff, not the defendant, requests the transfer. In Ferens v. John Deere Co., plaintiffs injured in Pennsylvania sued in a federal court in Mississippi, where the limitations period had not yet run, and then had the case transferred to Pennsylvania, where the action was dismissed under the Pennsylvania statute of limitations.13 The Supreme Court reversed and held that the transferee court must apply the limitations rule the transferor court would have applied. The majority reasoned that section 1404(a) looks to convenience, not to prejudice from a change in the applicable law, and that plaintiffs who could choose between Mississippi and Pennsylvania state courts keep that choice in federal court because Erie requires federal courts to replicate it. Four dissenters answered that the Mississippi suit was only a way station, which let the plaintiffs obtain in a Pennsylvania federal court a law that Pennsylvania's own courts would not have applied, the very result Klaxon was meant to prevent.
Combined, Klaxon and Van Dusen let a plaintiff choose the governing law issue by issue, as these facts show.
Each federal court in that scene matches the state court of its own state, which produces vertical uniformity, while the federal courts of different states reach different results, which is horizontal disuniformity.14 The plaintiff took New York law on one issue and Pennsylvania law on another, and every step was permitted: the New York filing was proper, the New York court followed New York's conflicts rules, and the transfer carried those choices forward. The last section of this chapter explains why a limitations period can be substantive for Erie purposes and still be treated as procedural for choice of law.
The rule has a cost. Klaxon buys intrastate harmony at the price of continued interstate divergence in choice of law,15 and the treatise counts some federal transfer cases among the troublesome ones.16 A plaintiff with two proper forums can choose between two sets of conflicts rules, and Van Dusen makes that choice survive a convenience transfer. The rule is nonetheless current law, and an answer that has the transferee court switch to its own state's conflicts rules after a proper convenience transfer is wrong.
Improper-Venue Transfers
A transfer that repairs a defective filing starts from the opposite premise of a convenience transfer. When the plaintiff files in a district that lacks proper venue or personal jurisdiction over the defendant, the court may transfer the case under section 1406(a) or section 1631 instead of dismissing it, and the transferee court then proceeds as if the case had been filed there originally.18 It applies the conflicts rules of the state where it sits and disregards those of the state where the plaintiff first sued, because the transferor court's law has no claim to ultimate application when the filing violated the rules of venue or personal jurisdiction.19 No federal rule fills the gap, since the transferee court still sits in diversity, and there is no federal general common law to supply a choice-of-law rule in place of the state's.20
The difference from a convenience transfer lies in what each statute assumes about the first courthouse. A convenience transfer moves a case that was properly filed to a better-located district, so the plaintiff's legitimate choice goes along with its conflicts rules.21 A transfer under section 1406(a) or 1631 assumes that the original court was the wrong place to sue. The plaintiff therefore has no legitimate forum choice for the law to protect, and the transferee court applies its own state's rules because the case was never legitimately in the first forum.22
The result also matches what dismissal and refiling would produce. A defendant sued in an improper district could move to dismiss, and the plaintiff would refile in a proper district, where Klaxon would give the new suit that district's conflicts rules. Transfer is a shortcut for that sequence. If the shortcut carried the improper forum's conflicts rules along, a plaintiff could ignore the venue limits, sue in a distant court whose rules favor the plaintiff, and keep those rules after the move, an advantage that dismissal and refiling would have forfeited. Applying the transferee state's rules keeps the governing law from turning on whether the defendant moves to dismiss or to transfer.
Van Dusen looks similar on the surface, since the case again lands in another state's courthouse and the defendant again asks for the move. The hinge is the legitimacy of the first filing. The Van Dusen plaintiffs sued in a forum they were entitled to choose, so that forum's conflicts rules went with the case, whereas the Maryland buyer's improper filing carried no rules to New York.23 In either situation the transferee court then applies whatever substantive law the applicable conflicts rule selects, and that law may belong to a third state.
Forum-Selection Clause Transfers
A third kind of transfer takes the Van Dusen rule out of the convenience category. In Atlantic Marine Construction Co. v. U.S. District Court, the Supreme Court held that when a party bound by a forum-selection clause breaks its promise and sues elsewhere, a section 1404(a) transfer will not carry with it the original venue's choice-of-law rules.25 The transferee court instead applies, as Klaxon directs, the choice-of-law rules of the state in which it sits.26
Atlantic Marine had subcontracted work to J-Crew Management, Inc., and their agreement required that disputes be litigated in Virginia. J-Crew sued in a federal court in Texas, and Atlantic Marine asked that court to enforce the clause. A contractual clause does not make venue improper under section 1391, so section 1404(a), not section 1406 or Rule 12(b)(3), is the vehicle for the request.27
That choice of vehicle sets up the choice-of-law question. Van Dusen holds that a section 1404(a) transfer from a proper forum keeps the transferor's conflicts rules, and the clause did not make Texas an improper venue, so Texas's rules might be expected to follow the case to Virginia. The Court refused to extend Van Dusen that far, for two reasons.
The first reason concerns what Van Dusen protects. The rule keeps a defendant from using a transfer motion to defeat the state-law advantages that come with the plaintiff's venue privilege. A plaintiff who files in violation of a valid forum-selection clause enjoys no such privilege and is entitled to no concomitant state-law advantages, because the contract gave the privilege up.28
The second reason concerns incentives. If the filing court's conflicts rules followed the case, a plaintiff who preferred Texas's rules could sue there in the teeth of the clause and keep them after the transfer. That result would be inequitable, and it would encourage gamesmanship.29 The Court, quoting Ferens, said that section 1404(a) should not create or multiply opportunities for forum shopping, so the court in the contractually selected venue should not apply the law of the transferor venue to which the parties waived their right.30
Behind both reasons stands the parties' bargain. A forum-selection clause may have figured centrally in their negotiations and affected how they set monetary and other terms, so courts should not unnecessarily disrupt settled expectations, and in all but the most unusual cases the interest of justice is served by holding parties to their agreement.31
Van Dusen marks the contrasting pole. There the plaintiffs' choice of a federal forum was legally unobjectionable, so a transfer resting on convenience and other discretionary factors could not be allowed to hand the defendants better governing law.32 J-Crew, by contrast, had promised to sue in Virginia, so Texas's rules had nothing legitimate to protect. The effect resembles an improper-venue transfer: it is as if the Court regards a filing in violation of a valid clause as a nullity, the way a filing in a court lacking venue or personal jurisdiction is a nullity, so that the transferor court's law has no claim to ultimate application in any of these situations.33
The Court also reshaped the section 1404(a) balance in the clause's favor. A motion to transfer to enforce a valid clause should be granted unless extraordinary circumstances are present, and the ordinary private interests receive no weight; the only private interest that matters is the one expressed in the contractual choice of forum itself.34 Choice of law enters on the public-interest side, because a transfer that enforces a clause does not carry the original venue's choice-of-law rules, a factor that in some circumstances may affect public-interest considerations.35 On the record in Atlantic Marine, no public-interest factor supporting denial of the transfer was apparent, and the Court reversed and remanded for the lower courts to decide that question.36
The holding fixes whose conflicts rule the transferee court uses, not which state's substantive law results. The rule of the transferee state can still select the law of the transferor state, as the following facts show.
The carve-out depends on a valid forum-selection clause that actually binds the plaintiff. The plaintiff loses the state-law advantages of the chosen forum because it contracted away the privilege of choosing it, and an invalid clause cannot have taken that privilege away. A court must therefore decide that the transfer stems from enforcement of a valid clause before it sets Van Dusen aside.37
Because the conflicts rules the transferee court uses depend on why the case moved, a transfer problem is best run by sorting the transfer into one of three categories before naming any state's law.