Brief Fact Summary
Following a federal district court’s dismissal of a breach of contract complaint under California’s two-year statute of limitations, Semtek International Inc. (Plaintiff) filed the same action in Maryland, which has a longer statute of limitations, but the court dismissed the case on grounds of res judicata.
Synopsis of Rule of Law
Where no conflict of federal interests exists, the claim preclusive effect of a dismissal by a federal court sitting in diversity should be determined according to the law of the state where the federal court is sitting.
Semek International Inc. (Plaintiff) brought suit against Lockheed Martin Corp. (Defendant) for breach of contract in California state court and Defendant removed the case to federal court. Following the court’s dismissal of the action with prejudice because the statute of limitations had run, Plaintiff filed the same complaint in Maryland, where Defendant was a citizen and the statute of limitations was longer. The Maryland trial court granted Lockheed’s (Defendant) motion to dismiss for res judicata and Plaintiff appealed, arguing that a California state court would not have given claim preclusive effect to a statute of limitations dismissal by one of its own courts. The Maryland appeals court affirmed the dismissal, holding that the res judicata effect of a federal diversity judgment was a matter of federal law and that the judgment was preclusive. The Supreme Court granted certiorari.
Where no conflict of federal interests exists, should the claim preclusive effect of a dismissal by a federal court sitting in diversity be determined according to the law of the state where the federal court is sitting?
(Scalia, J.) Yes. Where no conflict of federal interests exists, the claim preclusive effect of a dismissal by a federal court sitting in diversity should be determined according to the law of the state where the federal court is sitting. In Maryland, the claim preclusive effect of the California diversity judgment should not be based on either the precedent in Dupasseur v. Rochereau, 21 Wall. 130, 135 (1875), a case decided under the Conformity Act of 1872, which required federal courts to apply the procedural law of the forum state, or on Federal Rule of Civil Procedure 14(b). Despite the repeal of the Conformity Act and the use of the Erie Doctrine, the result decreed by Dupasseur continues to be correct for diversity cases. A uniform federal law is unnecessary since state law is at issue. The law that should be applied is the law state courts would apply in the state where the federal diversity court sits. Reversed and remanded.
California would not have accorded claim preclusive effect, and so, it was error for the Maryland court to do so. Under Erie, federal courts are to apply the substantive state law of the state where they sit. When the application of state law would influence the outcome of the case, state law should be applied.