Few legal concepts are more confusing than the rules that federal courts apply when sitting in diversity. Federal courts have limited jurisdiction. Jurisdiction loosely translates as the power to say what the law is and to whom it applies. (Courts must have jurisdiction over the type of legal claim and the person — for example, a court in Rhode Island that tries to issue a binding decision over someone in Australia who has no connection to Rhode Island is tilting at windmills). The Constitution limits the federal courts to certain types of cases (hence the moniker “limited jurisdiction”), and one type is known as diversity jurisdiction, which means a suit between citizens of different states. The idea is that litigants should have the option of a federal court for disputes between citizens of different states, as opposed to a state court, to mitigate any concerns of favoritism for in-state litigants in state court. The Constitution also allows Congress to further limit federal court jurisdiction more narrowly than the outer constitutional boundaries. For diversity jurisdiction, Congress has limited federal court jurisdiction to disputes between citizens of different states that have an amount in controversy greater than $75,000. In diversity cases, a plaintiff (the person bringing the lawsuit) has the choice to bring the suit in state or federal court. If the plaintiff chooses to bring the suit in state court, the plaintiff has made his or her choice of forum and must live with it. The defendant, however, has the option of removing the case from state court to federal court, but Congress has limited this type of diversity jurisdiction only to defendants who reside outside the state where the suit is brought. This isn’t required by the Constitution, but it follows the theme of protecting against favoritism on the premise that an in-state defendant is not likely to encounter a headwind in a state court.
Federal courts sitting in diversity are deciding legal claims that arise under state law. Federal courts generally decide cases based on federal law — things like violations of the Constitution or a federal statute. But in diversity cases, the federal court is essentially playing the role of a state court because it is deciding a state law question. The federal court is involved because one of the litigants has chosen to bring the case in federal court based on the fact that the plaintiff and defendant reside in different states.
The question then arises — what types of rules should the federal court apply in diversity cases? If the federal court is essentially pinch-hitting for the state court, does it apply the federal rules or the state rules? The answer is not simple, but boiled to a nutshell, the prevailing rule is that a federal court should apply the “substantive” rules of state law, and the “procedural” rules of the federal court. The line between a substantive rule and a procedural rule is not intuitive. State courts have their own rules of civil procedure that differ from the federal courts’ rules of civil procedure. If a case would survive if the federal court applied the state court rules of procedure, but the case would die if the federal court applies the federal rules of civil procedure, the prevailing rule is the federal court must apply its own procedural rules and let the case die. This is not an academic exercise, as the federal court in Rhode Island has applied the federal procedure rules to dismiss a case that would have probably survived in state court. The definition of a substantive rule under federal law is not entirely clear, but it includes concerns like encouraging uniform results, discouraging forum shopping in federal courts, and measuring whether the outcome would be different in state or federal court. Whatever all that means!
Enter the First Circuit Court of Appeals decision in Theriault v. Genesis Healthcare LLC, decided earlier this week. In Theriault, the First Circuit pondered whether the McDonnell Douglas burden shifting test is a procedural or substantive rule for a federal court sitting in diversity. In other words, is a federal court bound to utilize the McDonnell Douglas burden shifting test to analyze a state law claim because the test is procedural? Or must the federal court ignore the McDonnell Douglas test because it’s substantive, and instead apply a different state court rule?
The McDonnell Douglas test is generally used in federal employment discrimination cases at summary judgment when there’s no direct evidence of discrimination, and the plaintiff relies on circumstantial evidence to attempt to prove discrimination. As pretty much every employment lawyer knows by heart, McDonnell Douglas sets up a three-part burden shifting test. First, the plaintiff must put forth evidence of a prima facie case that allows a jury to conclude discrimination has occurred. The burden then shifts to the defendant-employer, who must come forward with a non-discriminatory reason for the action it took. The burden then shifts back to the plaintiff-employee to show that the employer’s stated reason is a pretext and that the real reason for the employer’s action was discriminatory.
Although the McDonnell Douglas test is typically used at summary judgment before trial, the First Circuit recently blessed its use in jury instructions at trial in Teixeira v. Town of Coventry, 882 F.3d 13, 17 (1st Cir. 2018) (upholding Rhode Island’s own District Judge McConnell’s jury instructions).
Returning to the First Circuit decision in Theriault released earlier this week, the case involved a Maine state-law employment discrimination claim. Unlike the federal courts, the state courts in Maine stopped using the McDonnell Douglas test and they do not apply it to Maine state-law employment discrimination claims. Maine law has no burden shifting; instead, the plaintiff must present evidence of causation without waiting for the employer to present a non-discriminatory reason for its actions. (By contrast, Rhode Island state courts continue to use McDonnell Douglas for state law discrimination claims).
The question arose in Theriault: since the federal court sat in diversity, must it apply McDonnell Douglas to the Maine state-law claim, even though a Maine state court adjudicating the same claim would not use McDonnell Douglas? On appeal, the plaintiff argued that the McDonnell Douglas test is a substantive law. The First Circuit concluded that the federal district court applied the Maine state-law rule for employment discrimination instead of McDonnell Douglas, and the First Circuit saw no reason to rule definitively on whether McDonnell Douglas is procedural or substantive because the plaintiff did not argue it was procedural. The First Circuit observed that the Eighth and Ninth Circuits have held that the rule is procedural, but the First Circuit ultimately expressed no view in Theriault on whether McDonnell Douglas is procedural or substantive.
While the First Circuit said in Theriault that it would save the issue for another day, it probably already decided it beforehand in Teixeira v. Town of Coventry, 882 F.3d 13, 17 (1st Cir. 2018), where it allowed the use of McDonnell Douglas in jury instructions at trial. In Teixeira, the First Circuit said “jury instructions are intended to furnish a set of directions composing, in the aggregate, the proper legal standards to be applied by lay jurors in determining the issues that they must resolve in a particular case.” The First Circuit then proceeded to “conclude, without serious question, that the appellant has not shown that the district court abused its discretion by including in its jury instructions a custom-tailored adaptation of the McDonnell Douglas framework. Read in their entirety, the instructions tasked the jury, in simple and easily understood language, with resolving the overarching issue in the case: whether or not the defendants took adverse employment actions against the appellant based on either a retaliatory or discriminatory animus.”
That sounds pretty substantive, not procedural. Perhaps Olaf from Frozen said it best: “Not sure if this is gonna solve the problem, but I found a staircase that leads exactly where you want it to go.”