West et al. v. American Telephone and Telegraph Co.
311 U.S. 223 (1940)
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Rule of Law:
Under the Erie doctrine, a federal court sitting in diversity jurisdiction must apply state law as declared by a state's intermediate appellate court, unless there is persuasive evidence that the state's highest court would decide the issue differently.
Facts:
- An Ohio decedent bequeathed 92 shares of American Telephone & Telegraph Co. (AT&T) stock to his widow for the duration of her life, with the remainder interest to go to the petitioners, the Wests.
- In 1927, the widow, acting as executrix, presented the stock certificates to AT&T for transfer, along with documents indicating her status and the petitioners' consent to a distribution in kind.
- AT&T issued a new certificate solely in the widow's name, without indicating her limited life estate or the Wests' remainder interest.
- In 1929, the widow used the certificate as collateral for a brokerage account, and AT&T transferred the shares to her broker by issuing a new certificate in the broker's name.
- The Wests first discovered this disposition of the shares in March 1934.
- On June 18, 1937, after a round of state court litigation, the Wests made a formal demand on AT&T to restore their rights to the shares.
Procedural Posture:
- The Wests (petitioners) sued American Telephone & Telegraph Co. (AT&T) in the Cuyahoga County Court of Common Pleas (an Ohio trial court), which entered judgment in their favor.
- AT&T, as appellant, appealed to the Cuyahoga County Court of Appeals (an Ohio intermediate appellate court), which reversed the trial court and rendered final judgment for AT&T, holding that a demand was a prerequisite for the suit.
- The Ohio Supreme Court (the state's highest court) denied the Wests' motion to review the case.
- The Wests then filed a new suit in the U.S. District Court for the Northern District of Ohio based on diversity of citizenship.
- The U.S. District Court found for the Wests, holding the suit was not barred because the cause of action did not accrue until the Wests made a formal demand.
- AT&T, as appellant, appealed to the U.S. Court of Appeals for the Sixth Circuit.
- The Court of Appeals reversed the district court's decision, declining to follow the state appellate court's rule and holding the claim was barred by the statute of limitations.
- The Wests (petitioners) successfully petitioned the U.S. Supreme Court for a writ of certiorari.
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Issue:
In a diversity jurisdiction case, does a federal court err by refusing to follow a decision of an intermediate state appellate court on a point of state law, particularly when that decision was rendered in prior litigation between the same parties and the state's highest court has declined review?
Opinions:
Majority - Justice Stone
Yes. A federal court errs by refusing to apply the rule of law announced by an intermediate state appellate court where that court's decision is the most authoritative statement on the specific state law issue. The purpose of Erie Railroad Co. v. Tompkins and Section 34 of the Judiciary Act is to avoid two conflicting systems of law within a single state. Federal courts are not free to create their own rules of decision simply because the state's highest court has not spoken on an issue. The decision of an intermediate state appellate court is a significant 'datum for ascertaining state law' that cannot be disregarded unless the federal court is convinced by 'persuasive data' that the state's highest court would rule otherwise. In this case, the Ohio Supreme Court's refusal to review the Court of Appeals' decision in the prior litigation between these same parties makes that decision the authoritative law of the state for this dispute, which the federal court was bound to follow.
Concurring - Justice Roberts
Yes. The Circuit Court of Appeals should have treated the decision of the Ohio Court of Appeals as expressing the law of Ohio regarding the necessity of a demand. However, the judgment should be affirmed, not reversed. Under Ohio law, as established in other cases, even when a demand is required, it must be made within the period of the statute of limitations (here, four years). The Wests did not make their demand until at least eight years after the cause of action accrued, which bars their suit. Therefore, while the Circuit Court's reasoning regarding the Erie doctrine was wrong, its ultimate conclusion that the suit was barred was correct.
Analysis:
This case significantly clarifies and extends the Erie doctrine, establishing that its mandate to apply state law goes beyond statutes and decisions of a state's highest court. Federal courts must now give substantial deference to the rulings of intermediate state appellate courts, treating them as binding precedent on state law matters. This decision curtails the ability of federal courts to speculate on how a state's highest court might rule and promotes the core Erie goal of ensuring legal outcomes do not differ simply based on whether a case is heard in state or federal court.
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