The Federalism Project

American Enterprise Institute



Michael S. Greve[1]


In the national debate over federal tort reform, constitutional federalism arguments have played only a subordinate role.  The congressional debates on federal liability laws and reform bills indicate little systematic attention to constitutional questions, and the legal literature on the subject is thin.  In a sense, this lack of attention is warranted.  The vast majority of federal tort reform laws, bills, and proposals tackle products liability, punitive damage awards, and other legal and regulatory matters that have a massive and direct impact on interstate commerce among producers, consumers, retailers, and insurers.  As this essay will show (briefly, and with no claim to originality), these matters fall squarely within the congressional authority to regulate  “commerce … among the several states.”[2]

If the constitutional dimension nonetheless merits attention, that is because it has played, and will continue to play, a subterranean and, to my mind, unfortunate role in the national tort debate.  Trial lawyers and their political patrons have invoked the traditional authority of the states as an argument against federal tort reform.  Pro-reform business lobbies have argued that the need for legal uniformity is too great to obsess over the states’ prerogatives; national problems, the corporate refrain runs, require uniform national solutions.[3]  Both sides, in other words, have cast the constitutional aspect of the fight over national tort reform as a conflict between the states’ traditional powers and the perceived need for legal uniformity in an integrated national economy.

These constitutional concerns (which, for reasons that will appear shortly, I hesitate to dignify with the term “arguments”) account for a certain hesitancy and, at times, dissension in the reform camp.  Some conservative (and generally pro-business) legislators have signaled their reluctance to invade an area that is perceived as the states’ traditional turf.[4]  Business lobbyists have invested considerable effort in trying to dispel those apprehensions.[5]  Moreover, a concern over states’ rights has shaped some federal tort reform statutes—ironically, as shown below, with the effect of exacerbating, rather than alleviating, the federalism problems attendant to national liability legislation. 

This essay argues that the near-universal perception of a conflict between traditional states’ rights and the economic need for uniformity is false.  Torts are not, without qualification, the states’ prerogative, either as a matter of tradition or, more important, of constitutional structure.  (Nor, I will suggest, does an integrated national economy necessarily demand uniform national rules.)  The constitutional problem lies elsewhere:  Many forms of modern civil liability and, in particular, products liability litigation, amount to systematic wealth transfers from out-of-state defendants to in-state plaintiffs.  The Constitution not only contains no warrant for such parochialism and cross-border exploitation; it provides ample congressional authority, and arguably imposes something approximating a congressional obligation, to prohibit regulatory aggression among the states. 

This analysis need not entail the nationalization of substantive tort law.  Rather, it demonstrates the need for federal interventions that would curb the twin tort problems of parochialism and cross-border exploitation and, in this fashion, replace regulatory aggression among the states with effective state competition.  This article presents—or rather regurgitates—two complementary proposals to this effect:  an expansion of federal “diversity” jurisdiction, and the proposal (made some time ago by Michael McConnell and elaborated more recently by Michael Krauss) to base the courts’ choice of law in product liability lawsuits on the state of the first retail sale.[6]  To place the proposals in their appropriate constitutional context, I will begin with the futility of the traditional states’ rights argument and then move on to the constitutional structure.   

Torts, Traditions, and Commerce

The notion that federal civil liability reform would pose a constitutional threat to the states’ traditional role in adjudicating civil liability lawsuits has considerable currency and prominence among reform opponents.  The American Bar Association opposes most federal tort legislation on these grounds.[7]  Commenting in 1996 on the passage of a federal products liability bill, Anthony Lewis—on other occasions, a sharp critic of federalism—insisted that tort law has been state law “for 200 years” and denounced the federal legislation as “radical move towards centralization.”  On the same occasion, consumer activist Joan Claybrook invoked a states’ rights tradition in tort law and condemned federal tort reforms for “infringing upon state sovereignty.”  Her sentiment was echoed by the President-elect of the American Trial Lawyers’ Association and by then-President Clinton, who vetoed the bill as “an unwarranted intrusion on state authority.”[8]   These averments are often accompanied by accusations to the effect that conservatives who simultaneously champion federalism and national tort reform are guilty of rank hypocrisy.

The tort reformers’ principal response has been to emphasize the economic necessity of national legislation, while disputing the argument from tradition.  It is too late in the day (the response goes) to insist on state law traditions as a constitutional barrier to federal tort legislation.  The modern Supreme Court’s federalism precedents pose no obstacle to federal reform.  A judicial decision that would pose such an obstacle is extremely unlikely and, moreover, would imply a return to the discredited, irresponsible doctrines of the Lochner era.[9]  Excepting the Lochner statement (about which more shortly), this line of reasoning is substantially correct.

As an initial matter, the nineteenth century knew nothing resembling the product liability lawsuits that are the principal target of contemporary federal tort reform activity.  It did of course know tort suits among citizens of different states.  Such cases, however, were ordinarily litigated under federal common law.  Their commitment to state law is the result of the Supreme Court’s very non-traditional, 1938 decision in Erie Railroad v. Tompkins. [10]

At the same time, Congress has enacted federal tort reforms for nearly a full century.  The (misleadingly named) Federal Employees’ Liability Act, enacted at the beginning of the twentieth century, displaced the state common law regimes that had theretofore governed liability disputes between railroad employers and their employees and, in their stead, enacted a federal tort regime.  The Jones Act (1920) extended FELA-style protections to merchant seamen; a 1927 statute did the same for longshoremen and harbor workers.[11] 

Subsequent enactments took a somewhat different form: rather than substituting state common-law doctrines with federal tort standards, Congress typically preempted entire areas of state tort law and superimposed federal, regulatory and administrative schemes.  Labor relations statutes enacted under the New Deal, such as the Wagner Act and the Norris-LaGuardia Act, replaced existing common-law regimes governing local labor disputes with a comprehensive, federal system of administrative dispute resolution.  Many consumer protection and health and safety statutes enacted in the 1970s likewise displaced then-extant state liability regimes in those areas with national regulation. 

Modern federal liability reform statutes have taken yet a different form: instead of preempting state tort law in entire fields, Congress has often imposed federal rules that directly govern liability lawsuits in state or federal court—liability caps for tort lawsuits over vaccines and nuclear power plants, a statute of repose for commercial aircraft, restrictions on shareholder lawsuits in federal and state court, and liability limitations in Y2K actions, among other measures.[12]  Bills and proposals for federal products liability reform have the same structure.  Some commentators and trial bar advocates have suggested that the direct federal imposition of substantive rules on state court proceedings is more problematic, constitutionally speaking, than wholesale federal preemption.[13]  But with one qualification discussed below (the federal imposition of state court procedures in cases arising under state law), the distinction makes no constitutional difference.  The power to preempt is the power to regulate.  Within the scope of its enumerated powers, and barring only the violation of some other, independent constitutional constraint (for example, the right to a jury trial), Congress is free to prescribe the rules that state courts must apply.

The courts have uniformly sustained the federal enactments as legitimate exercises of the congressional authority to regulate interstate commerce.  In the wake of the New Deal, the Supreme Court extended federal authority to regulate commerce among the states to the cultivation of wheat for home consumption and, in later decades, to prohibiting racial discrimination at Ollie’s Barbecue, an otherwise local, private diner that was said to “affect” interstate commerce through the purchase of out-of-state food supplies.[14]  If the aggregate interstate flow of ketchup suffices to regulate local discrimination, the Commerce Clause provides ample room for the congressional regulation of slip-and-fall incidents at the local Wal-Mart, a national (in fact, an international) enterprise that buys and sells practically nothing but out-of-state stuff.

The boundless extension of the Commerce Clause is no longer an uncontested fait accompli.  In two important recent decisions, United States v. Lopez and United States v. Morrison, the Supreme Court has re-limited the scope of the Clause.[15]  Morrison, interestingly, invalidated a federal tort remedy for gender-based violence as beyond the reach of congressional authority under the Commerce Clause or the Fourteenth Amendment.  The Supreme Court may well continue to pursue the logic of its federalism decisions.  Katzenbach v. McClung, the notorious case over Ollie’s Barbecue, may yet bite the constitutional dust or, perhaps, be limited in scope to the peculiar, uniquely important area of civil rights (even if Morrison itself suggests otherwise).[16]  Still, a collision between federal civil liability reform and the Supreme Court’s federalism is a very remote prospect.

Morrison invalidated the federal tort remedy at issue because gender-based violence is not a form of economic conduct that would be subject to the commerce power.  In so doing, the Court explicitly affirmed Congress’s authority to regulate matters that are economic (though not necessarily interstate, so long as Congress rationally believes that the aggregate interstate conduct substantially affects interstate commerce).  Morrison leaves much room for argument and speculation as to where, precisely, the Supreme Court will and should in future cases draw the line between economic and non-economic regulation.[17]  (Is federal land use regulation “economic” or something else?)  Even a narrow understanding of what constitutes economic regulation, however, will leave ample room for virtually every federal tort reform bill that has been or is likely to be proposed.[18] 

In short, the historical argument against states’ rights traditions as a barrier to federal liability legislation is persuasive.  It has, however, proven less than fully effective in discrediting what former Solicitor General Walter Dellinger has called the trial lawyers’ “false federalism”[19] and in overcoming the qualms that some conservative, federalism-minded legislators harbor on the subject.  The reason is that the argument in an important sense fails to engage the question of federalism’s compatibility with national tort legislation:  reform advocates concede the premise of a once-existing state tort tradition and its constitutional significance, and proceed to show that it is simply too late for a robust constitutional federalism.  In fact, however, that premise has no place in a sound constitutional analysis--including, and perhaps especially, the constitutional fundamentalism of the Lochner era. 

To be sure, “traditional” state functions have played an occasionally prominent role in federalism cases.  The notion makes sense in cases involving the federal regulation—or regimentation—of the states as states, in their sovereign capacity.  In such cases, the Tenth Amendment and the general structure and principles of the Constitution are thought to preclude federal statutes that have the effect of  “commandeering” the states’ governmental functions.[20]  It is a huge and unwarranted leap, however, to expand the protection of sovereign functions into a broader injunction against federal interference in areas where, and merely because, the regulation of private parties has traditionally been left to the states.  It is one thing to say that Congress may not use its constitutional powers to dismantle the states as quasi-sovereign entities.  It is an entirely different—and wholly erroneous—thing to say that the Congress may not regulate private parties in some area because it has “traditionally” left that area to the states.  Mere congressional inaction, however prolonged, tells us nothing about the scope of congressional authority.  Outside the commandeering context, the central federalism question is whether a given statute is or is not within Congress’s constitutional powers.  Within that realm, congressional authority is plenary, and even the most traditional and cherished state concerns must give way.[21] 

The authority for these propositions is Chief Justice John Marshall’s decision and opinion in Gibbons v. Ogden (1824), the lodestar of Commerce Clause analysis.  In Marshall’s words, the power to regulate interstate commerce, “like all others vested in Congress, is complete in itself, may be exercised to its utmost extent, and acknowledges no limitations other than are prescribed in the Constitution.”  Conversely, if Congress exceeds its authority, that is the end of the constitutional inquiry, and political traditions add nothing to it.  So, Congress lacks the power to regulate that commerce “which is completely internal, which is carried on between man and man in a State, or between different parts of the same State, and which does not extend to or affect other States.”[22]  The limitation flows from the constitutional text, structure, and logic, not from habits or traditions.  An examination of traditional state functions can inform the constitutional analysis, but it cannot constitute or supply the criteria that mark the boundaries of enumerated powers and distinguish permissible from impermissible exercises of federal authority.

The much-maligned Lochner Court clearly understood this logic, which bears directly on the question of federal tort legislation.  In the Employers’ Liability Cases (1907), the Court considered the constitutionality of the aforementioned Federal Employers’ Liability Act of 1906 (FELA), which preempted state common-law doctrines governing relations between railroad employers and employees with a federal tort regime.  The decision represents the lone exception to a since-unbroken string of Supreme Court decisions sustaining federal tort legislation and preemptions.  It rests precisely not on traditional notions of the states’ police powers but on the structure of the Commerce Clause.  The employers argued that FELA impermissibly extended “the power of Congress as to the relation of master and servant, a subject hitherto treated as being exclusively within the control of the States.”  The Court duly noted the argument—and rejected it.  Quoting Chief Justice Marshall’s expansive statements on the scope of federal authority in Gibbons, the Court squarely held that the “the power of Congress may be exercised as to the relation of master and servant in matters of interstate commerce.”  Labor relations are so intimately tied to commerce that to admit congressional authority over an instrument of interstate commerce (trains) “and yet to say that all regulations which deal with the relation of master and servants engaged in its operation are invalid for want of power would be but to concede the power and then to deny it.”[23]  Only then, and with some reluctance, did the majority of Justices proceed to invalidate the statute as purporting to regulate not only interstate but also wholly in-state transactions between employers and employees.

Congress promptly conformed FELA to the Supreme Court’s decision.  The Justices unanimously sustained the amended statute, declaring that the authority of Congress to displace state common law on matters that have a “real or substantial connection” with interstate commerce “does not admit of doubt.”  While slightly recasting the analysis of the Employers’ Liability Cases, the Court again insisted that employer liability has such connection to commerce.  As in the first round of litigation, the Court made short shrift of the states’ traditional police powers over employer liability.  “The inaction of Congress” in this area, the Court observed, “in no wise affected its power over the subject.”[24]

If ever the notion of traditional state powers over tort law should have had purchase, it was in 1907:  unlike modern federal liability laws, FELA was in fact unprecedented.  Still, the Court that decided the Employers’ Liability Cases explicitly rejected the state-tradition argument.  It did not do so for fondness of the national government or its decision to trump common-law relations with what many Justices may well have viewed as a proto-socialist scheme; after all, the same Court invalidated federal child labor laws as an impermissible regulation of (in-state) production, rather than interstate commerce itself.[25]  No:  the Court was simply too clear-headed to be distracted from the logic of Gibbons v. Ogden.

The confused extension of “traditional state powers” into enumerated-powers cases is largely the work of the modern Supreme Court—more precisely, a by-product of the Court’s effort to arrest the boundless expansion of the Commerce Clause after the New Deal.  Fearful that a full-blown return to an enumerated-powers jurisprudence might threaten the national regulatory state, yet eager to resurrect pieces of the federalist architecture, some Justices have suggested on occasion that the congressional authority under the Commerce Clause extends to absolutely everything except, perhaps, to statutes that usurp “traditional” areas of state authority.  Justices Kennedy’s and O’Connor’s concurring opinion in United States v. Lopez is an example of this tendency.[26]

Morrison, however, mercifully puts that thinking to rest.  Chief Justice Rehnquist’s opinion for the Court focuses squarely on the enumerated-powers question of whether the statute at issue regulates economic conduct—that is, conduct that is either itself economic or that is tied directly to such conduct.  The congressional power and its limitation operate regardless of whether or not Congress is legislating in “traditional” areas of state regulation.  In orientation, though not in scope, Morrison thus marks a return to the conceptual clarity and the structural constitutional considerations of the Employers’ Liability Cases.  The application of those considerations to liability law is the subject of the next section.

Constitutional Structure

Federalism, and the Commerce Clause in particular, implies that the states may regulate, and federal government’s authority does not extend to, operations that are “completely internal” to each state and do “not extend to or affect other States,” as Chief Justice Marshall put it.   In those areas, the states are free to experiment, and an extension of national authority would certainly be “unnecessary” and “inconvenient.”

Why is state regulation of internal matters preferable to national regulation of those affairs?  The basic answer is that federalism is a (partial) solution to the governmental monopoly problem.  Enable the national government to regulate X, and you will be stuck with a uniform X-solution that you may not like—and from which there is no escape (save emigration).  State regulation, on the other hand, means jurisdictional competition.  Citizens who do not like the regulatory packages offered by their state of residence can move with relative ease.  So can businesses.  The right—and the threat—of exit will discipline state governments, provide protection against inefficient legislation, and offer consumers and producers with varying preferences a menu of regulatory regimes.[27] 

The corollary of citizen choice and jurisdictional competition is that the states’ autonomy over their internal affairs does not extend to regulating citizens of other states.  Regulatory “exports” threaten state competition and its salutary effects in three ways: by imposing burdens on parties who have no voice and no vote in the matter; by undermining exit rights; and by depriving the citizens of rival jurisdictions to govern themselves.  The price of state sovereignty and autonomy, then, is an uncompromising insistence that states may not extend their regulatory reach beyond their own borders and to each other’s citizens.  The logic is analogous to that of private rights.  My rights must end where yours begin, not because some philosopher said so or because it wouldn’t be nice for me to have more rights (it surely would), but rather because a multi-person world of scarce resources renders mutual non-aggression the only plausible rule.  In the same way, an assertion of “states’ rights” beyond the confines of self-government and mutual forbearance is profoundly inimical to federalism’s logic and purposes.

Two factors will induce state efforts to regulate outsiders:  scale (or externalities), and parochialism.  As cross-border transactions increase, so do the extra-territorial effects of state regulation.  In regulating that traffic, each state will be tempted to favor its own citizens and to impose the costs of regulation on non-voting outsiders.  Accordingly, the Constitution contains mechanisms to suppress regulatory aggression among the states.  The Contracts Clause, for example, prohibits the states from making laws “impairing the Obligation of Contract” because each state will be tempted to relieve its own citizens from contractual obligations owed to non-residents.[28]  More to the point in the present context, the Commerce Clause enables Congress to regulate interstate commerce so as to preempt and prohibit state exports of regulatory costs.

The application of these precepts to tortious liability is tolerably straightforward.  Many (perhaps most) areas of tort liability are still internal to each state.  A personal injury or trespass action by one state resident against another has no spillover effects, and whatever temptation a state judge may have to expropriate the occasional non-resident in a particular dispute will be tempered by the realization that it is for the most part the state’s own citizenry that must live with the rule of decision. 

A similar analysis applies when out-of-state parties willingly expose themselves to a state’s liability regime (provided they can avoid such exposure at low cost).  New Jersey skiers and snowboarders knowingly submit to the restrictive liability rules that govern accidents on Colorado’s slopes.  So long as Colorado’s rules can be relied on to govern liability disputes (an issue to which I will turn below), no federalism problem arises.  The liability limitations come in a bundle with the snow and the Rockies, and the dissatisfied can purchase Massachusetts’ package (more generous liability rules, icier snow, lesser mountains).  So, too, with businesses that can differentiate their products—or withhold them altogether—in accordance with the rules that obtain in various jurisdictions.  National hotel chains can readily adjust their business practices to the varying liability rules concerning liquor service to minors and to the inebriated.

The analysis changes, however, with respect to the most intensely debated proposals for federal tort reform—products liability.   In this area, the problems of scale and parochial irresponsibility hit with full force.[29]  The constitutional federalism problem is not that Congress, in regulating products liability law, might invade the states’ traditional and legitimate turf.  The constitutional problem and scandal is that Congress has failed to curtail, through federal intervention, a game of mutually assured regulatory aggression with massive adverse consequences on all states.

Unlike the national hotel chain that runs a large number of essentially local establishments, manufacturers of mass-marketed products cannot charge differing prices to adjust for the liability risk in different jurisdictions.  Putting aside the difficulties of calculating and pricing the risk differentials, any attempt to price products in accordance with liability exposure in the various states would be undercut by arbitrageurs who sell low-priced products in high-risk markets.  Product modifications (for example, add-on safety devices for products sold in states with a high liability risk) would be equally expensive and futile, since the cheaper, “unsafe” products would inevitably wind up in high-risk markets.  For the same reason, even a complete refusal to sell products in high-risk jurisdictions provides little protection.[30]

Products are sold everywhere.  Injured customers, on the other hand, live in one place.  This means that most product liability lawsuits will be brought by in-state plaintiffs against out-of-state manufacturers.  The combination of in-state plaintiff and out-of-state defendant entails that the benefits of a product liability lawsuit will fall almost invariably on in-state parties, whereas the costs are borne by the consumers of mass-marketed products across the country.  The opportunity to export regulatory costs gives each state an incentive to expand liability and, in this manner, to expropriate the citizens of other states (so long as those states fail to catch up).[31] 

The problems of scale and bias are exacerbated by the liberal choice-of-law rules that govern modern liability disputes.[32]  “Choice of law” means the courts’ selection of the substantive state law that will govern a dispute among parties from different states.  The rules now allow plaintiffs to sue in virtually any jurisdiction, regardless of whether they or the allegedly defective product have any real connection to that jurisdiction.  Plaintiffs and their attorneys will tend to select the most plaintiff-friendly jurisdiction, which will then determine product liability and design standards for the entire country.  The general result—though not the stated rule—of modern choice-of-law analysis is that courts will apply the law that is most favorable to the plaintiff. 

Trial lawyers and consumer advocates have portrayed product liability litigation under open-ended choice-of-law rules as a pristine federalist regime and proposed federal reforms, as constitutionally suspect.  The opposite is more nearly true.  Far from ensuring the states’ autonomy over their affairs, the existing product liability regime robs the states and their citizens of this option. Georgia may want to be gun-friendly, but it will be deprived of that choice when judges and juries elsewhere effectively mandate stringent gun safety standards.  The citizens of state A may reach a considered judgment that a particular product is worth the risks associated with its use; they lose that choice when liability verdicts in state B or C drive that product off the market.  Even constituencies that ordinarily favor expansive and uninhibited state liability litigation, such as consumer advocacy groups and state attorneys general, have occasionally recognized the problematic nature of local, litigation-driven regulation for national markets.  They reacted with alarm over a multi-billion dollar class action in an Illinois state court alleging that auto insurers’ use of so-called aftermarket auto parts constitutes fraudulent behavior.  The application of Illinois law, the advocates feared, would effectively govern automobile insurance laws in all fifty states, including states that actually require the use of aftermarket parts (as opposed to original parts) in an effort to reduce insurance rates.[33]

The analysis just sketched in its bare bones is in need of elaboration and, perhaps, qualification.  It explains, for example, why tort reform at the state level has focused primarily on areas that principally affect in-state producers (such as medical malpractice); it does not explain why some states have in fact enacted products liability reforms.[34] Similarly, since no state can discriminate explicitly between in-state and out-of-state manufacturers in the application of liability rules, expansive liability rules will affect in-state manufacturers as well as outsiders.  Thus, one would expect small, less-industrialized states to drive the liability expansion.  It appears, however, that such states (Wyoming, Nevada) have had little to do with the expansion of products liability, while at least one large, industrialized state (New Jersey) has played a leading role.  It is not even clear that the “state” is the right level of analysis.  The link between (state-wide) liability doctrines and the size of verdicts may be quite tenuous.  The unpredictability and variability of liability awards may have more to do with jury determinations (for example, of “reasonableness”) than with legal rules.[35]   Exorbitant liability verdicts seem to come chiefly from a few problem jurisdictions within some states—a phenomenon that has prompted some of those states (such as Texas, Alabama, and Georgia) to enact statutes providing that liability lawsuits may be filed only in counties where the defendants do business, thus precluding plaintiff-attorneys from in-state forum shopping.

That said, the great weight of the evidence supports the analysis.  In fact, state courts favor not simply in-state plaintiffs but also in-state over out-of-state defendants.  In an analysis of over 7,500 jury verdicts from 48 states, Eric Helland and Alexander Tabarrok have shown that verdicts against out-of-state defendants exceed verdicts against in-state defendants by several hundred thousand dollars.[36]  Their study shows a difference between the mean awards of close to $180,000 for states with appointed judges ($384,540 for out-of-state defendants, as against $207,957 for in-state defendants).  In states with partisan judicial elections, the difference between mean awards against in-state and out-of-state defendants is even larger ($652,720 against out-of-state defendants, as against $276,320 against state residents).  The differences, which are attributable chiefly to a relative handful of very large verdicts, are not explained by the defendants’ size or financial resources but rather their domicile.  This evidence suggests that liability litigation operates as a kind of tort tariff on out-of-state producers.

Unlike shifting, uncertain notions of “traditional” state authority, the constitutional structure that underpins the Commerce Clause charts a path through the tort thicket.  It explains why some branches of tort law—those with effects that remain internal to each state—should be left to the states, while others—those that present problems of scale and bias—can and should be subject to federal intervention.  Between the easy cases—slip-and-fall cases at one extreme, products liability at the other—lie a lot of hard ones.  For instance, state liability rules governing disputes that will principally occur among in-state parties, such as mass tort suits over local accidents or medical malpractice litigation, tend to ripple through national insurance markets.  One can argue long and hard over the constitutional wisdom and legitimacy of federal intervention in these matters.[37]  The structural perspective just sketched will not provide a definitive answer in each case.  But at least, it directs the national debate towards the right questions.

Moreover, the analysis suggests not only the scope but also the contours and purpose of federalism-enhancing national tort reform.  Ideally, such reforms would refrain from trumping (some) inefficient state regimes with a uniform national scheme.  Attending to the problems of scale and bias should not imply obliviousness to the problems that attend monopolistic regulation.  There is no reason to think that a national political bargaining process will generate an optimal liability level.  Even if it did, it would freeze into law, probably for many decades, liability rules that may soon come to be recognized as woefully inefficient.  Moreover, consumer preferences for liability protections may vary widely across geographic regions; manufacturers’ tolerance for liability rules may vary across industries, or even from firm to firm.[38]  Instead of striving for national uniformity, then, reform efforts should attempt to curb the twin problems of scale and parochialism and to restore, to the extent possible, policy competition among rival jurisdictions.  The following sections sketch two plausible—and complementary—approaches. 


A straightforward solution to problems of scale and bias is to route cases involving parties from more than one state—so-called diversity cases—into the federal courts, which are less susceptible than state tribunals to parochial pressures and tendencies. 

Existing law (more precisely, judicial interpretations of that law) require “complete” diversity to establish federal jurisdiction.[39]  (In addition, the amount in controversy must exceed $75,000.)  Diversity is “complete” only if no plaintiff in the case resides in the same state as any defendant.  The rule applies even in class actions involving thousands of parties from all parts of the country.  Plaintiff-attorneys often defeat federal diversity jurisdiction by naming in-state defendants such as retailers or automobile dealers even when the plaintiffs’ monetary claims run almost exclusively against out-of-state manufacturers.  A better and constitutionally more appropriate rule, at least for cases involving substantial amounts of money, would provide for federal jurisdiction in cases of minimal diversity—that is, all cases that involve any plaintiff and any defendant from different states.  

For reasons that will appear shortly, Congress plainly possesses the authority to enact minimal diversity legislation.[40]   It has in fact enacted such legislation with respect to so-called interpleader actions and, in recent years, considered minimal diversity legislation concerning products liability and other multi-state actions.  The most promising proposals would expand federal diversity jurisdiction over multi-state class actions, where the case for exclusive federal jurisdiction is particularly compelling.[41]  Minimal diversity legislation was also a central component of the liability reform proposals propounded by President (then candidate) George W. Bush.[42] 

Admittedly, an expansion of federal diversity jurisdiction would not fully remedy the problems of regulatory cost exportation and liberal choice-of-law rules that bias the system towards liability expansion.  Under the doctrine of Erie Railroad v. Tompkins and its progeny, federal courts would apply the law of “their” state, including its choice-of-law rules.[43]  Plaintiffs’ lawyers would therefore continue to gravitate towards plaintiff-friendly states with liberal liability laws and generous juries.  For this reason (among others), the following section will urge a federal reform of the existing choice of law regime.  The evidence briefly summarized in the preceding section, however, strongly suggests that even under existing rules, the venue—state or federal—would make a substantial difference.[44]  That suspicion is confirmed by plaintiff-attorneys’ pronounced preference for state court litigation and defense counsels’ equally pronounced desire to litigate in a federal forum.

It is further confirmed by the trial bar’s and consumer advocates’ shrill denunciation of minimal diversity reform proposals as an attack on the traditional authority of the states and especially of state courts.  Under their theory, a class action against, say, Ford Motor Company, involving tens of thousands of plaintiffs across the country, is strictly the internal business of the state of Texas so long as, and because, one plaintiff and a co-defendant car dealer both reside in the Lonestar State.[45]  Despite its transparent absurdity, however, the argument has had political traction and, for example, helped to stall the class action reform bills just mentioned.  It bears emphasis, therefore, that the states’-rights argument is implausible not only on its face but also from a constitutional perspective. 

The constitutional arrangement of diversity jurisdiction embodies a compromise between Framers who urged the creation of federal trial courts, and others who wished to leave adjudication to the states.  While empowering Congress to establish “inferior” federal courts (inferior, that is, to the United States Supreme Court), the Founders relied on state courts to apply federal law in the ordinary course of adjudication, subject to appeal to the United States Supreme Court.  This arrangement is reflected in the Supremacy Clause, which binds the judges in every state to federal law (constitutional, by treaty, or statutory), “any Thing in the Constitution or Laws of any State to the Contrary notwithstanding” (Article VI, Sec. 2).  Excepting constitutionally specified cases of original federal jurisdiction, state court jurisdiction over federal cases was the ordinary practice for many decades.  The federal courts did not obtain general federal question jurisdiction until 1875. 

The institutional point of the constitutional compromise, in other words, is not that state courts should hear state cases and federal courts, cases arising under federal law.  Rather, the purpose of granting Congress the power to establish lower federal courts was to provide a neutral forum for the resolution of  “all those [cases] in which the State tribunals cannot be supposed to be impartial and unbiased,” as Alexander Hamilton put it in Federalist Paper 80.[46]  Hamilton envisioned that federal and especially constitutional matters might be among those cases, since “the prevalency of a local spirit may be found to disqualify the local tribunals for the jurisdiction of national causes.”[47]  The expectation of state partiality, however, plays a much larger role—it “has no inconsiderable weight”—“in designating the federal courts as the proper tribunals for the determinations of controversies between different States and their citizens.”  That includes controversies between citizens of different states, or what we now call diversity jurisdiction.  State adjudication of such matters would invite judicial bias and “fraudulent” state laws and, in due course, strife and dissension among the states. 

Hence, the need for federal diversity jurisdiction:  “[W]hatever practices may have a tendency to disturb the harmony between the States, are proper objects of federal superintendence and control.”  “The reasonableness” of relying on federal courts when the impartiality of state tribunals is in doubt “speaks for itself.”[48] But the arrangement is more than a matter of propriety and prudence; it is a constitutional imperative.  Invoking the Privileges and Immunities Clause of Article IV, which provides that the “Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States,” Hamilton insisted that “in order to [achieve] the inviolable maintenance of that equality of privileges and immunities to which the citizens of the Union will be entitled, the national judiciary ought to preside in all cases in which one State or its citizens are opposed to another State or its citizens.”[49]   

The constitutional abnormality, then, is not that federal courts should hear civil liability cases involving parties from more than one state.  The constitutional abnormality is that judge-made rules of complete diversity should push a vast majority of less-than-complete-diversity cases, affected though they are with an extreme risk of parochial bias, into state courts.  Chief Justice Marshall, inveighing against suggestions that broad federal diversity jurisdiction betrayed an unwarranted distrust of state courts, argued that the Constitution reflects a desire to prevent, not just actual state bias but even the mere suspicion of such bias:

However true the fact may be, that tribunals of the states will administer justice as impartially as those of the nation, to the parties of every description, it is no less true, that the constitution itself either entertains apprehensions of this subject, or views with such indulgence the possible fears and apprehension of suitors, that is has established national tribunals for the decision of controversies between … citizens of different states.[50]

We have far more than a mere suspicion of parochial bias in trans-border liability cases.  We have a theory that explains the systemic bias and persuasive evidence to buttress the theory.  What we lack, after decades of states’ rights cant, is a sober awareness of the constitutional structure and logic.

Sentimentality for perceived state law traditions has not only, as noted, played a role in stalling proposed minimal diversity legislation; it has also helped to generate liability reform bills, both proposed and already enacted, that decline to expand federal jurisdiction and instead prescribe highly specific state court procedures. The Biomaterials Access Assurance Act of 1998, for example, purports to shield the producers of biomedical raw materials and medical implant parts from product liability by specifying elaborate procedural rules concerning motions to dismiss.  The act limits discovery pending a state court determination on such motions, requires that the motions be considered only on the basis of pleadings and affidavits, and specifies additional rules for the judicial consideration of summary judgment and stay motions.[51]  Federal statutes establishing liability limitations on Y2K actions and shareholder fraud litigation incorporate similar provisions.  The same is true of products liability reform bills considered in years past.  Political dynamics explain the pattern:  Business lobbies clamor for wholesale federal preemption; trial lawyers, for leaving state law alone.  Federal judges complain over a predicted flood of litigation.  Manipulating the procedural rules of state court litigation emerges as a viable and seemingly federalism-friendly compromise.   That compromise, however, is highly problematic and, unlike a clean expansion of diversity jurisdiction, quite possibly unconstitutional.[52] 

Congress may of course establish federal laws and causes of actions that state courts must adjudicate.  It may also prescribe the procedures that state courts must follow in adjudicating cases arising under federal law.  Moreover, state courts may not rely on state procedures that defeat the purpose and operation of federal statutes.  All this follows, in a reasonably straightforward fashion, from the Supremacy Clause.  The federal regimentation of state court litigation of state law claims, however, is arguably a different matter.  The Supreme Court, in the Second Employers’ Liability Cases, “deem[ed] it well” to distinguish the state courts’ cognizance of federal laws, under prevailing state court procedures, from “any attempt by Congress to enlarge or regulate the jurisdiction of state courts or to control or affect their modes of procedure.”[53]  Since the Federal Employers’ Liability Act involved no such attempt, the Supreme Court did not decide the issue, and it has not done so since.  The dicta, tenor, and logic of numerous decisions, however, strongly suggest that the modern Court would view federal procedural mandates very skeptically.  Were the question squarely presented, the Justices might well find that particularly drastic interventions into state court procedures are beyond the bounds of congressional authority.

The general rule, the Supreme Court has stated, “bottomed deeply in the importance of state control over state procedure, is that ‘federal law takes the state courts as it finds them.’”[54]  This broad statement is subject to the exceptions of congressional legislation over state courts under the Supremacy Clause, and one might argue that those broad exceptions leave nothing of the general rule:  after all, the power to establish federal causes of action and federal defenses might be taken to include the lesser power to dictate the manner in which state courts shall consider those claims.  Supreme Court decisions under the Tenth Amendment, however, have explicitly rejected the lesser-power argument in the closely analogous context of the federal commandeering of state legislatures and executive officials.  In New York v. United States (1992) and Printz v. United States (1997),[55] the Court held that the federal authority to preempt entire fields—nuclear waste disposal in New York, gun registration in Printz—did not imply a congressional power to compel state legislation or to “dragoon” state executives into federal law enforcement.  To the extent that federal liability reform laws force state legislatures to revise their codes of civil procedure (which in some states are a matter of legislative enactment), they would appear to run directly afoul of the New York injunction against federal commandeering. 

Federal procedural commands to state judges present a more difficult case, since the Supremacy Clause—which applies to state judges but not to state legislators or executives—authorizes federal commandeering.  The conventional, constitutionally envisioned form of commandeering, however, is the congressional enactment of substantive laws that state courts must apply.  The question is whether that authorization should be read to extend to the congressional manipulation of state court procedures.

At least one powerful decision suggests why the Supremacy Clause probably should not be so read.[56]  The Justices’ central concern over federal commandeering of state legislatures and executives, which is expressed both in New York and, more forcefully, in Printz, is the diffusion of political responsibility and accountability attendant to such legislation.  When the feds commandeer state legislators or executives, citizens no longer know who can be held to account.[57]   That consideration applies with considerable force to the federal manipulation of judicial procedures in state court actions under state law.[58]  An expansion of federal diversity jurisdiction or, for that matter, a federal substantive liability limitation can readily be traced to the Congress.  Not so, however, with state court liability decisions under federally massaged state procedures, in cases that are bound to be procedural muddles to begin with:  no plaintiff or defendant, let alone an outside observer, can reliably attribute a particular verdict to the federally imposed procedures or their application by a state judge.  The case might have come out differently under different procedures; but how would one know?

The constitutionality of federal, procedural stealth preemption is a genuinely difficult question, and it would be hard to argue that the practice is clearly unconstitutional.  It seems ill advised, however, for Congress to rely on a highly problematic legislative scheme when a much cleaner approach is readily available.  It is true that a minimal diversity rule would imply a certain distrust of state courts.  But that is also true of federally mandated procedures for state court actions, notwithstanding the sentimental—and false—federalism proclamations that tend to accompany such legislation.  In fact, federal stealth preemption and procedural micro-management are bound to produce far more resentment and mistrust than a straightforward restoration of diversity jurisdiction.  The distrust implicit in this latter proposal, for better or worse, is that of the Constitution.

Choice of Law

State choice-of-law rules that enable plaintiffs’ attorney to choose the most plaintiff-friendly jurisdiction transform products liability litigation into a one-directional race towards ever-more expansive liability.  The odds that the resulting liability regime reflects the considered preferences of citizens and policy-makers in any jurisdiction, let alone all of them, are exceedingly low.  A more sensible, constitutionally acceptable, federal choice of law regime would restore, to the extent possible, the states’ authority to choose their own liability regimes, without inflicting the costs of their arrangements on outsiders.

Choice of law is that rare area of the law that taxes even the experts’ patience.  (At least one prominent scholar has opined that almost any federal rule would be preferable to the existing hodge-podge of inconsistent, poorly articulated doctrines.[59])  Fortunately, for the purposes at hand, only the constitutional implications of the matter are at issue.  The central constitutional point is this:  in choice of law, as in diversity jurisdiction, potential constitutional problems lie not in the prospect of federal intervention but in federal abdication.  The constitutional oddity is that the field should have been ceded in the first place to state courts and their choice-of-law rules, which are systematically biased against sister-states and their citizens.  Here as in the diversity arena, the oddity is a modern confusion, not a product of constitutional structure.

“Choice of law” is the question, whose law governs (and whom it governs) in disputes that involve more than one state.  That is by definition a federal question, since no state can presume the authority to create binding law for a sister-state.  It is almost by definition a constitutional question, or at least a question governed by constitutional considerations.  As Douglas Laycock has put it in a forceful article, “Choice-of-law questions are about the allocation of authority among the several states.  Allocation of authority is what constitutions do.”[60]

The Constitution contains several provisions that bear upon choice of law.  Notably, the Commerce Clause and the Privileges and Immunities Clause of Article IV forbid states from discriminating against outsiders and in favor of their own citizens (or corporations), and there is no reason why choice-of-law rules should constitute an exception to this general rule.  Moreover, the Full Faith and Credit Clause (Article IV Sec. 1) provides that “Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial proceedings of every other State.”  As Laycock argues persuasively, “full faith and credit” means that no state may prefer its own law to that of a sister state.  In Laycock’s judgment, the choice-of-law rules employed in most states violate either the rule of equal citizenship, or the rule of equal states, or both.[61]

The Full Faith and Credit Clause is self-executing, meaning that it can be enforced in court without requiring federal implementing legislation.  But the Clause is not exclusively self-executing, for it authorizes the Congress to “prescribe … the Effect” of state acts, records, and proceedings in other states.  That authority is itself limited by constitutional provisions and principles.  So, for example, a federal statute providing that citizens of one state may be taxed or regulated by another state without even minimal contacts between the citizens and the “foreign” state would raise considerable due process problems.  A federal statute providing that the laws of one state shall govern all others would violate basic principles of equality and reciprocity among the states.  The plain import of Laycock’s analysis is that Congress would also lack the constitutional authority to codify the choice-of-law rules that currently apply in most states, were it of a mind to do so.  Without going so far, it is plain that Congress possesses the authority, and arguably a constitutional obligation, to enact federal choice-of-law rules that ensure equality and mutual non-aggression among the states.[62]

Professor Michael McConnell has identified the Full Faith and Credit Clause (more precisely, its “Effects” part) as a source of congressional authority to enact a federal choice-of-law regime that would induce each state to consider the costs as well as the benefits of its product liability regime–in other words, a regime that would, to the extent possible, force each state to act as if it were an autarky.[63]  That regime, McConnell argues, would provide that products liability lawsuits be governed by the law of the place of sale, meaning “the place of delivery of a product to the ultimate purchaser through an ordinary commercial channel.”  Such a rule would discourage extreme (pro-plaintiff or pro-defendant) rules, since states would have an incentive to maximize sales through a products liability law that will attract the largest aggregate number of sellers and buyers.  Moreover, manufacturers might be able to control arbitrage through differential pricing.  Products would be more expensive in high-liability states than in more defendant-friendly ones.  Consumers would choose whether or not they wish to pay the price differential—in effect, a product liability insurance premium.

McConnell’s proposal is plainly within the purview of congressional authority under the Full Faith and Credit Clause.  It would compel the states to respect each other’s legal arrangements while enjoining regulatory aggression.  Problems, if any, arise over the details and the economics.  For example, it seems fair to hold the purchaser of a car bought in a “cheap,” low-liability jurisdiction to the terms of his bargain, including the liability limitations in the state of sale.  But what if a product defect—say, a brake failure—causes an injury to a stranger?  Why should his liability lawsuit be governed by the law of the state of sale rather than the law of his own (“expensive,” high-liability) state?  More generally, McConnell concedes that his proposed regime might generate insufficient incentives because, among other reasons, manufacturers may find differential pricing excessively costly and cumbersome (except, perhaps, with respect to outlier jurisdictions with very extreme liability rules).[64] 

William Niskanen has proposed the more ambitious solution of letting the manufacturer’s home state—that is, the state where the manufacturer has the largest number of employees—govern products liability lawsuits.[65]  The fear of losing jobs and tax income would deter states from imposing excessive liability.   Such a regime, however, may create a bias in the opposite direction:  states would be induced to attract industry by offering excessively lenient, under-protective liability rules, and the fact that the state’s own citizens are subject to the same liability laws as out-of-state plaintiffs may be insufficient to prevent that result. 

In the end, it may be impossible to generate choice-of-law rules that will precisely mimic a neutral, competitive world of autarkic jurisdictions.[66]  The search for perfection, however, is beside the point.  The sensible question is whether a competitive products-liability world, operating under approximately efficient (if imperfect) choice of law rules, will be preferable to the existing game of mutually assured regulatory aggression and, at the other extreme, to any set of monopolistic, national rules that are likely to emerge.  The answer to that question is almost certainly in the affirmative.  In this light, choice-of-law proposals merit much more serious consideration than they have received to date.

The Politics and Rhetoric of Federal Tort Reform

The preceding analysis is in large part the product of modern law and economics scholarship.  It pays little heed to traditional notions of states’ rights and instead emphasizes federalism’s economic and institutional dynamics.   But if the language of competition and efficiency strikes traditional constitutionalists as idiosyncratic or grating, that is largely a matter of terminology.  In substance, the analysis coheres well with the Founders’ constitutional intuitions and intentions.  The Commerce Clause has been subject to ceaseless debate over its scope and contours.  But neither these disagreements nor the dramatic shifts in the Supreme Court’s Commerce Clause jurisprudence have affected the general consensus that the central purpose of the clause is to enable Congress to remedy protectionist and parochial state legislation.  The notion that state tribunals cannot be entrusted with disputes among citizens of different states was the Founders’, as was the remedy of broad federal diversity jurisdiction.  The constitutional principles of non-discrimination among citizens of different states and of equality and reciprocity among the states themselves are fundamental, and a short chain of reasoning leads from those principles to an injunction against state choice-of-law rules that enshrine preferences for domestic law and litigants.

Diversity jurisdiction, the Founders believed, is the central business of the federal judiciary; in products liability, it is severely restricted.  As late as the 1950s, Henry Hart (the most renowned federal courts scholar of his generation) argued that the best use of diversity jurisdiction would be the adjudication of choice-of-law issues, yet the federal courts have largely abandoned that field.[67]  Judicial abdication provides a rationale for the exercise of congressional authority, yet Congress has done nothing to address the diversity and choice-of-law problems.  Federal abdication, not an incursion into the states’ prerogatives, is the central federalism problem in the products liability arena.  

These conclusions are diametrically opposed to the conventional wisdom.  The conventional view of “traditional” states’ rights, however, reflects a massive intellectual confusion—or, put more gently, a failure to distinguish between the real, constitutional federalism and the federalism of the New Deal.  If the question is how the New Dealers could, in virtually one breath, unleash the national government’s regulatory authority from constitutional constraints, yet celebrate the “laboratories of the states” and (under the Erie doctrine) expand the reach of state liability law, the answer is that they sought to expand the regulatory competence and capacity of government at all levels.   That project is coherent in its own peculiar way, but it is inconsistent with the constitutional order and, moreover, a poor guide to a liability regime for a modern economy.

The legislative proposals that flow from a principled constitutional analysis are far more protective of federalism and states’ rights, properly understood, than the current order or, for that matter, than some of the reforms and proposals that purport to respect states’ rights and traditions.  Unlike stealth preemption, a minimal diversity rule would allow state courts to retain control over civil procedures in cases that belong in state court.  McConnell’s choice-of-law proposal would restore, rather than infringe upon, state autonomy over products liability law.  It is certainly far more respectful of the states than federal product liability reforms that would superimpose uniform national standards or procedures on state law.  States would actually be enabled to experiment with varying liability regimes, and Congress would extend its powers only so far as necessary to affect the core purpose of the Commerce Clause.  The modest reach and ambition of the proposals should make them quite attractive to states, to federal legislators who are apprehensive about invading state authority, and to business lobbies whose substantive reform proposals have been stymied for two decades. 

Political reality, alas, is a different matter.  Congress has only rarely used its Commerce Clause powers to bar state exports of regulatory costs or tailored its interventions to that end.  The Full Faith and Credit Clause has lain virtually dormant.[68]  The usual pattern has been the wholesale—though often implicit and surreptitious--displacement of state regulatory authority.  When Congress trumps state regulation, in other words, it usually erases policy competition among the states, rather than protecting or enhancing it.

The paucity of federal curbs on state regulatory exports, at least one expert has argued, may indicate that such exports are quite rare.[69]  But this seems implausible.  For example, some 20 to 25 percent of state tax revenues have been attributed to the taxation of out-of-state parties.  Only three times in its entire history, however, has Congress acted to curtail state tax exports.  (Two of these enactments effectively codified earlier decisions by the Supreme Court.)[70]  The Supreme Court’s dormant Commerce Clause cases abound with pleas that Congress, rather than the Justices, should address problems arising from cross-border regulation and taxation; more often than not, those pleas have gone unheeded.[71]  Products liability law is a system of massive regulatory cost externalization.  The evidence strongly suggests the pervasiveness of the phenomenon—and a pervasive congressional inability or unwillingness to address it through competition-enhancing rather than broadly preemptive interventions.

It seems much more plausible, then, to attribute the all-or-nothing character of federal preemption to public choice dynamics.  Interest groups do not invest in lobbying for competitive arrangements with uncertain outcomes; they invest in advancing their own monopolistic solutions.  These dynamics rarely push toward a competitive regime that represents a second-best for all concerned; typically, they produce a monopolistic compromise among several monopolistic positions.  That is how business lobbies and trial lawyers haggle their way to stealth preemption, individual industry exemptions, and liability caps at fixed dollar levels.

The force and pervasiveness of these dynamics suggest the urgency of gaining a better understanding of the circumstances under which competitive regimes might come about through spontaneous, “bottom-up” processes, rather than centralized, interest-group driven intervention.  (In a speculative but intriguing essay, Bruce Hay has suggested that competitive choice-of-law rules might emerge in this fashion.)[72]  At the same time, we know that interest group and public choice dynamics do not always and invariably preclude the implementation of competitive federalist arrangements.  A plausible theory of the circumstances that permit such policies to prevail might provide a better understanding of the prospects for competition enhancing federal tort reform.[73]

Perhaps no pure interest group or public-choice model can demonstrate that such reforms are a plausible prospect.  One may hope, though, that federal tort reform efforts are not entirely driven by unalterable economic calculations.  Larger ideological considerations appear to play an independent role.  Trial lawyers and consumer advocacy groups have been able to use states’-rights arguments to put business lobbyists on the defensive and to give pause to conservative, pro-business legislators.  Their arguments, though false and at times bordering on the demagogic have resonated.  The trouble with federalism arguments in the federal tort debate, in other words, is not their impotence but their wrong-headedness.   A sentimental attachment to states’ rights and artfully reconstructed traditions is an intellectual and political dead end; what is needed instead is a return to the Founders’ more hardheaded thinking about the structure and purposes of a federal Constitution.  If false federalism can make friends and pack punch, so perhaps can the real thing.

[1] John G. Searle Scholar and Director of the Federalism Project, American Enterprise Institute.  I am indebted to Robert Gasaway, Michael McConnell, William Niskanen, and Michael E. Rosman for helpful comments on an earlier draft.  All errors are mine.

[2] In addition to the Commerce Clause (U.S. Constitution Art. I, Sec. 8 para 3), other constitutional provisions may provide a basis for certain federal tort reform initiatives.  For example, the U.S. Supreme Court has held that punitive damages pose due process problems, see BMW of North America v. Gore, 517 U.S. 559 (1996).  To the extent permitted by City of Boerne v. Flores, 521 U.S. 507 (1997), Congress can regulate punitive damage awards under its authority, granted by Section 5 of the Fourteenth Amendment, to enforce the guarantees of the Amendment “by appropriate legislation.”  The Spending Clause (Art. I. Sec. 8 para. 1) authorizes Congress to regulate liability regimes that affect federally funded programs (think of the effects of medical malpractice litigation on federal Medicare expenditures).  Procedural and jurisdictional reform proposals—e.g., reforms that would govern choice of law, diversity, and choice of forum—can be based on the authority of Congress to “ordain and establish” lower federal courts (Art. I sec. 8 para 9) and the jurisdictional provisions of Art. III or, as discussed below, on the Full Faith and Credit Clause (Art. IV Sec. 1).  The Commerce Clause, however, is the most obvious and comprehensive source of authority.    

[3] A scholarly contribution in this vein is O. Lee Reed & John L. Watkins, “Product Liability Tort Reform: The Case For Federal Action,” 63 Neb.L.Rev. 389 (1984) (“As a national problem, the product liability problem calls for a national solution.” [at 463]).

[4] See, e.g., Senator Fred Thompson’s Statement on the Federalism Accountability Act ( (visited November 7, 2000).

[5] See, e.g., Victor E. Schwartz, Mark A. Behrens, and Leavy Matthews III, “Federalism and Federal Liability Reform: The United States Constitution Supports Reform,” 36 Harv. J. on Legis. 269 (1999).

[6] Michael McConnell, “A Choice-of-Law Approach to Products-Liability Reform,” New Directions in Liability Law 90 (Walter Olson, ed.) (1988) [hereafter McConnell, “Choice of Law”]; Michael I. Krauss, “Federalism and Product Liability Reform” (American Enterprise Institute, 2001).

[7] See American Bar Association, An agenda for Justice:  ABA Perspectives on Criminal and Civil Justice Issues 95 (1996) (noting ABA’s “long and consistent” opposition to federal legislation because “[a] congressional attempt to nationalize tort law raises constitutional federalism issues”).

[8] Gary T. Schwartz, “Considering the Proper Federal Role in American Tort Law,” 38 Ariz. L. Rev. 917, 918 (1996) (comments by Lewis, Claybrook, and ATLA); Neil A. Lewis, “Backers of Limits on Lawsuits Win a Victory in the Senate,” N.Y. Times , Mar. 21, 1996, at A22. 

[9] A representative article along these lines is Schwartz, Behrens, and Matthews, “Federalism and Federal Liability Reform,” supra note 5.

[10] 334 U.S. 64 (1938).

[11] Jones Act, 46 U.S.C. § 688; Longshore and Harbor Workers' Compensation Act, 33 U.S.C. §§ 901.

[12] For brief synopses of these and several similar statutes see Perry H. Apelbaum & Samara T. Ryder, “The Third Wave of Federal Tort Reform: Protecting the Public or Pushing the Constitutional Envelope?” Cornell J. L. & Pub. Pol’y 591, 612-628 (1999) and Schwartz, Behrens, & Matthews, “Federalism and Federal Liability Reform,” supra note 5 (at 277-8).

[13] E.g., Edmund W. Kitch, “Can Washington Repair the Tort System?” New Directions in Liability Law (Walter Olson, ed.), 102, 104-07 (1988); Jeffrey White [Associate General Counsel, Association of Trial Lawyers of America], “Does the Products Bill Collide With the Tenth Amendment?” Trial Nov. 1997, at 32.

[14] Wickard v. Filburn, 317 U.S. 111 (1942); Katzenbach v. McClung, 379 U.S. 294 (1964).

[15] United States v. Lopez, 514 U.S. 549 (1995); United States v. Morrison, 529 U.S. 598 (2000).

[16] U.S. v. Morrison, 529 U.S. 528, (2000).

[17] A sophisticated attempt to use the distinction as a basis for a predictable Commerce Clause jurisprudence is Grant S. Nelson & Robert J. Pushaw, Jr., “Rethinking the Commerce Clause: Applying First Principles to Uphold Federal Commercial Regulations but Preserve State Control Over Social Issues,” 85 Iowa L. Rev. 1 (1999).

[18]  The possible exceptions are federal liability protections for non-profit agencies and volunteers.  See the Food Donation Act, Pub. L. No. 104-210, 110 Stat. 3011 (codified at 42 U.S.C.A. 1991 (West Supp. 1998)) (liability protections for food donors); Volunteer Protection Act, Pub. L. No. 105-19, 111 Stat. 218 (codified at 42 U.S.C.A. 14501-14505 (West Supp. III 1997)) (liability protections for non-profit and government volunteers).  Almost by definition, the protected agents are not engaged in commercial, economic activity, and the statutes do not aim to regulate such conduct.  While the non-profit nature of the regulated activity or actors does not necessarily render the statutes unconstitutional, see Camps Newfound/Owatonna v. Town of Harrison, 520 U.S. 564, 584 (1997) (“there is no reason why an enterprise’s nonprofit character should exclude it from the coverage of … the [Commerce] Clause”), Morrison does raise serious questions concerning their constitutionality.

[19] Walter Dellinger, Statement before the House Judiciary Committee, Hearing on H.R. 1875, “The Interstate Class Action Jurisdiction Act of 1999”  (July 21, 1999).

[20] New York v. United States, 505 U.S. 144 (1992); Printz  v. United States, 521 U.S. 898 (1997).

[21] Thanks to Michael E. Rosman for his help in clarifying this paragraph.

[22] Gibbons v. Ogden, 22 U.S. 1, 196, 194 (1824).

[23] Employers’ Liability Cases (Howard v. Illinois Cent. R. Co.) 207 U.S. 463, 491 (summarizing counsel’s argument); 496 (authority of Congress) (1908).

[24] Second Employers’ Liability Cases (Mondou v. New York), 223 U.S. 1, 48-49, 55 (1912) (citations omitted).

[25] Hammer v. Dagenhart, 247 U.S. 251 (1918).

[26] U.S. v. Lopez, 514 U.S. 549 at 580-81.   Suggestions of a possible collision between national products liability legislation and the Supreme Court’s federalism have been based on a reading of Lopez as a Tenth Amendment case in disguise.  See, e.g, Jerry J. Phillips, “Hoist By One’s Own Petard:  When a Conservative Commerce Clause Interpretation Meets Conservative Tort Reform,” 64 Tenn. L. Rev. 647, 659-663 (1997).  Implausible, to my mind, even before Morrison, the suggestions are made untenable by that decision.

[27] See generally Richard A. Epstein, “Exit Rights Under Federalism,” 55 Law & Contemporary Problems 147 (1992).

[28] Federalist Paper No. 7 lists “[L]aws in violation of private contracts” as a “probable source of hostility” among the states since such laws “amount to aggressions on the rights of those States whose citizens are injured by them.”  Federalist Papers (Clinton Rossiter ed. 1961) at  65.  Note that the protection against impairments of the obligation of contract—one of the few individual rights in the original Constitution—runs against the states, whereas the seemingly similar Fifth Amendment protection against uncompensated takings of private property, prior to its incorporation into the Fourteenth Amendment, held good only against the federal government.  That is so, Professor Michael McConnell has argued, because the victim of state government “takings” (of, say, land) are mostly in-state residents, who can protect themselves through voice (that is, voting) and exit.  Out-of-state creditors, in contrast, have no escape, and therefore need constitutional protection against exploitative state legislation.  Michael McConnell, “Contract Rights and Property Rights: A Case Study in the Relationship Between Individual Liberties and Constitutional Structure,” 76 Calif. L. Rev. 267 (March 1998).

[29] The analysis presented in the following paragraphs is standard fare in the law-and-economics literature.  My exposition follows McConnell, “Choice of Law,” supra note 6.

[30] Put differently, product manufacturers have no feasible way of avoiding the “minimum contacts” that expose them to a state’s long-arm jurisdiction.   On the dilution of the minimum contacts rule as a predicate for state court jurisdiction see generally David Crump and Arthur R. Miller, “Jurisdiction and Choice of Law in Multistate Class Actions after Phillips Petroleum v. Shutts,” 96 Yale L. J. 1 (1986).

[31] “Regulatory cost” may mean either a monetary transfer (such as punitive damages) or a product design change.  The perspective of tort law as essentially a regulatory regime (as opposed to a judicially discovered common law) underlies the Supreme Court’s path breaking decision in Erie Railroad Co. v. Tompkins, 334 U.S. 64 (1938).  It is also the perspective of modern law and economics scholarship.

[32] A description of the origin and complexities of modern choice-of-law rules is emphatically beyond the scope of this paper.  The standard, excellent account of the raging academic debate is Lea Brilmayer, Conflict of Laws: Foundations and Future Directions 11-108 (1991).  A recent overview of choice-of-law rules in products liability litigation is Russell Weintraub, “Choice of Law for Products Liability,” 52 Ark.L. Rev. 157 (1999).

[33] Matthew L. Wald, “Suit Against Auto Insurer Could Affect Nearly All Drivers,” N.Y. Times  Sept. 27, 1998, at A29.

[34] See Richard A. Epstein, “The Political Economy of Product Liability Reform,” 78 Am. Econ. Rev. 311 (May 1988 Special Issue) (arguing that state legislatures cannot be expected to reform products liability).

[35] Robert L. Rabin, “Federalism and the Tort System,” 50 Rutgers L. Rev. 1, 12-14 (1997).  Rabin concludes that the expansion of enterprise liability as a response “to legitimate concerns about loss spreading and creating incentives to safety, rather than illustrative of a heated interstate competition on behalf of instate residents.”  Id. at 21 (footnote omitted).  But the concerns and the competition are not mutually exclusive.  Moreover, Rabin would have difficulty accounting for the emergence of liability practices such as punitive damages, whose impact is purely redistributive, rather than deterrent or compensatory.

[36] Alexander Tabarrok & Eric Helland, “Court Politics: The Political Economy of Tort Awards,” J. Law & Econ. 157 (1999); Tabrrok & Helland,  “Exporting Tort Awards,” 23 Regulation, No. 2, 21 (2000).

[37] For a balanced analysis of the rationales for federal intervention in the health care and medical malpractice area, from a perspective close to that sketched in the text, see James F. Blumstein, “A Perspective on Federalism and Medical Malpractice,” 14 Yale J. Reg. 411 (1996).

[38] The summary of the advantages of a decentralized, competitive regime follows McConnell, “Choice of Law,” supra note 6.  For intriguing historical examples of liability doctrines that are suitable for some jurisdictions but not others see Rabin, “Federalism and the Tort System,” supra note 35, at 6-10. 

[39] The complete diversity prerequisite for federal diversity jurisdiction is purely statutory, not constitutional.  See Strawbridge v. Curtis, 7 U.S. (3 Cranch) 267 (1806).

[40] The Supreme Court has acknowledged the fact.  State Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523 (1967).

[41] The Interstate Class Action Jurisdiction Act, H.R. 106-1875, was passed by the House of Representatives in September 1999.  It did not receive consideration by the full Senate.

[42] For President Bush’s policy statement on minimum diversity reform, see (visited December 2, 2000).

[43] See Erie RR v. Tompkins, 334 U.S. 64 (1938) and the extension of the Erie doctrine to choice-of-law rules in the much-criticized Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487 (1941).

[44] Empirical evidence in other areas of the law further buttresses this conclusion.  In franchising litigation, for example, parochial bias induces state courts to favor in-state franchisees or out-of-state franchisors.  Franchisors fare better in federal court.   See Bruce H. Kobayashi and Larry E. Ribstein, “Contract and Jurisdictional Freedom,” in The Fall and Rise of Freedom of Contract  (F.H. Buckley, ed.) (1999).

[45] For elaboration see E. Donald Elliott, Statement before the House Judiciary Committee, Hearing on H.R. 1875, “The Interstate Class Action Jurisdiction Act of 1999” (July 21, 1999).

[46] Federalist Papers (Clinton Rossiter ed. 1961) at 475.

[47] Id. (No. 81), at 486.

[48]  Id. (No. 80), at 478.

[49] Id. at 478 (emphasis added).

[50] Bank of United States v. Devaux,, 9 U.S. (5 Cranch) 61, 87 (Marshall, C.J.).

[51] Biomaterials Access Assurance Act of 1998, Public Law 105-230.

[52] Several scholars have noted the problematic nature of congressional “stealth preemption” through federal laws that effectively amend state court procedures over state law claims.  The best treatment of the subject is Wendy E. Parmet, “Stealth Preemption:  The Proposed Federalization of State Court Procedures,” 44 Vill. L. Rev. 1 (1999).  The following paragraphs in the text are based on Parmet’s insightful and balanced article.

[53]  Second Employers’ Liability Cases, 223 U.S. 1, 56 (1912).

[54] Howlett v. Rose, 496 U.S. 356, 372 (1990) (quoting Henry Hart, “The Relations Between State and Federal Law,” 54 Colum. L. Rev. 489, 508 (1954)).

[55]  New York v. United States, 505 U.S. 144 (1992); Printz v. United States, 521 U.S. 898 (1997).

[56]  I owe the point in this paragraph to Robert Gasaway.

[57] See New York v. United States, 505 U.S. 144 at 168 and especially the following, central passage in Printz v. United States, 521 U.S. 898 at 930:

By forcing state governments to absorb the financial burden of implementing a federal regulatory program, Members of Congress can take credit for ‘solving’ problems without having to ask their constituents to pay for solutions with higher federal taxes. And even when the States are not forced to absorb the costs of implementing a federal program, they are still put in the position of taking the blame for its burdensomeness and for its defects.

[58] The injunction against federal commandeering applies only to the federal imposition of affirmative duties on state officers, not to mere prohibitions against certain conduct.  Reno v. Condon, 528 U.S. 141 (2000).  Presumably, the distinction would also apply in the context to federally mandated state court procedures.  At least some such procedures, however, plainly constitute affirmative obligations.  See, e.g., the brief summary of the Biomaterials Access Assurance Act, supra note 51 and accompanying text.

[59]  Michael H. Gottesman, “Draining the Dismal Swamp: The Case for Federal Choice of Law Statutes,” 80 Geo.L.J. 1 (1991). at 1-2.

[60] Douglas Laycock, “Equal Citizens of Equal and Territorial States: The Constitutional Foundations of Choice of Law,” 92 Colum. L. Rev. 249 (1992) [hereafter Laycock, “Constitutional Foundations”].

[61] Laycock, Constitutional Foundations, id at 251, 310-315.  Amazingly, Laycock observes, the father of modern, “interest”-based choice-of-law theory (Brainerd Currie) “appeared to concede that his interest analysis would be unconstitutional in many or even most of its applications.” Id. at 254.  Laycock argues that constitutionally acceptable choice of law rules must be territorial, rather than interest based.  That claim is controversial.  It is independent, however, from the broader point explored in the text—i.e., the authority of Congress to legislate some choice of law rules under the Full Faith and Credit Clause.  

[62]  Id. at 331 (“It is common ground [among scholars] that Congress can designate the authoritative state law under the effects Clause …”); id. n. 455 (collecting authorities); id. (“The failure of Congress and the [Supreme] Court to deal with choice-of-law problems is a major abdication of responsibility.”) 

[63] McConnell, “Choice of Law,” supra note 6. For a choice-of-law proposal similar to McConnell’s see Harvey S. Perlman, “Products Liability Reform in Congress:  An Issue of Federalism,” 48 Ohio St. L.J. 503, 508 (1987) (suggesting that manufacturers be permitted to designate the state law applicable to their products or, alternatively, that products liability be adjudicated in the state of the original retail sale).

[64]  For a defense of McConnell’s proposal against these and other objection see Michael I. Krauss, “Federalism and Product Liability Reform” supra note 6. 

[65] William Niskanen, “Do Not Federalize Tort Law,” 18 Regulation, No. 14 (1995).

[66]   McConnell, “Choice of Law,” supra note 6, at 99.  Arguing from premises similar to McConnell’s (but in a broader and international context), Andrew Guzman likewise concludes “it is not possible to construct a complete set of choice of law rules that will yield an efficient result in every instance.”  Guzman, “Choice of Law: New Foundations,” UC Berkeley Public Law and Legal Theory Working Paper Series #28, at 23 ( Handout/LawReviews/Guzman-Sec-COL.html ) (visited October, 2000).

[67]  Henry M. Hart, Jr. & Herbert Wechsler, The Federal courts and the federal system 635-36 (1953); Hart, “The Relations Between State and Federal Law,” 54 Colum. L. Rev. 489, 513-15 (1954).

[68] Congress rarely legislates under the Full Faith and Credit Clause.  Some examples of when it has: The Full Faith and Credit Act of 1790, ch. 11, 1 Stat. 122 (codified as amended at 28 U.S.C. § 1738); Parental Kidnaping Prevention Act of 1980 (28 U.S.C. § 1738A); The Defense of Marriage Act of 1996 (28 U.S.C. § 1738C).

[69] Edmund W. Kitch, “Regulation and the American Common Market,” in Regulation, Federalism, and Interstate Commerce (Dan A. Tarlock, ed.) (1981).

[70] C. McClure, “The Interstate Exporting of State and Local Taxes: Estimates for 1962,” National Tax Journal 20: 49-77; Hellerstein/cite by Meth and Ryan

[71] Consider, for example, Justice Stevens’ encouragement in Quill v. North Dakota, 504 U.S. 298, 318 (1992):   “[T]he underlying issue [of state use tax collection from out-of-state mail order businesses] is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve.”

[72] Bruce L. Hay, “Conflicts of Law and State Competition in the Product Liability System,” 80 Geo. L.J. 617 (1992).

[73] Jonathan R. Macey, “Federal Deference to Local Regulators and the Economic Theory of Regulation: Toward a Public-Choice Explanation of Federalism,” 76 Va. L. Rev. 265 (1990) presents a positive theory of the conditions under which federal legislators will tend to refrain from trumping state regulation.  Macey’s model, however, does not explain the paucity of pro-competitive federal interventions; the choice is between all (federal preemption) or nothing (congressional inaction even when interstate spillover effects are rampant).  The puzzle would make for an interesting article or dissertation.