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Wednesday, January 23, 2013

Erieblogging: Day Twenty-Three

The question for the day: Do the twin aims of Erie apply when a federal court entertains a state law action while sitting in bankruptcy

The question is not whether applicable state law should be used by a federal court sitting in bankruptcy. It obviously should, unless there is some conflict between the state's law and the goals of bankruptcy. The question is whether the twin aims of Erie apply. Is there a reason for uniformity between the federal procedural common law used in bankruptcy and the law used by a forum state court, even if the relevant state supreme court does not care whether its law is used?

The role of the twin aims in bankruptcy is a puzzle because federal bankruptcy jurisdiction is exclusive, so there is arguably no problem of forum shopping. In addition, a federal court sitting in bankruptcy has jurisdiction over all of the debtor’s property, no matter where it is located, and nationwide service of process is available. So it can entertain a state law action or issue even though the matter could not have been entertained by a forum state court. 

Once again, it is hard to answer this question unless we know where the twin aims come from. This question counts as underexplored, not unexplored, by the way. There are a few articles out there on the topic, generally focused on whether Klaxon applies in bankruptcy, a matter about which there is a circuit split.

(Parallel posted on Michael Green's Civ Pro Blog.)

Posted by Michael Steven Green on January 23, 2013 at 01:23 PM in Civil Procedure | Permalink

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Hi, Michael. Scott here again. I just can't seem to leave our Erie conversations alone. I'm likely going to embarrass myself by displaying my lack of bankruptcy knowledge, but since you and I are probably the only ones reading these posts closely, I'll take the risk. Couldn't there in fact be a problem of forum shopping? In a voluntary bankruptcy, the petitioner has the option not to file for bankruptcy, thereby leaving any ancillary state claims for state court. If the real decision whether to file for bankruptcy is based upon whether the ancillary claims will be heard in state court or federal bankruptcy court, there's forum shopping in the initial decision whether to file for bankruptcy or not. The same arguably could happen in an involuntary bankruptcy proceeding if the creditors care more about the ancillary state claims than the bankruptcy proceeding.

Posted by: Scott Dodson | Jan 23, 2013 4:24:28 PM

I agree - the decision to declare (or compel) bankruptcy could be motivated by forum shopping concerns, if the difference between state and federal procedure was significant, which could easily be true if they used different choice-of-law rules...

Posted by: Michael Steven Greeen | Jan 23, 2013 5:44:59 PM

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