Halfway There: An Empirical Analysis of How State Courts Have Failed Fully to Apply the Two-Part Test of Semtek

Abstract

Preclusion is a useful tool to ensure final judgments and speed up litigation. Parties rely on preclusion law to make litigation decisions. Preclusion law affects the vigor in which parties will litigate, settlement decisions, delay tactics, and joinder choices. However preclusion law is not uniform throughout the country. Different state and federal courts apply different rules for determining a preclusive effect on issues such as mutability, alternative holdings, finality, same claims, rulings on the merits, and compulsory counterclaims. Understanding which preclusion law applies helps parties make informed litigation decisions. Keeping preclusion law consistent ensures that courts are given the full faith and credit intended by the Constitution. State courts are bound under both the Full Faith and Credit Clause and Statute to apply the preclusion law of the first forum when the first forum is another state court. Therefore, a correct following of Full Faith and Credit means applying the preclusion law of the first state. Around the turn of the 20th Century, the Supreme Court extended states’ obligation to follow the preclusion law of the first forum when it is a federal court. Under the Full Faith and Credit Clause and Statute, forum courts should faithfully apply the preclusion law of the first forum.Professor Howard Erichson’s 1998 article, Interjurisdictional Preclusion, showed that state courts often apply interjurisdictional preclusion incorrectly. Erichson empirically examined how state courts handled interjurisdictional preclusion problems. He did this by studying preclusion cases between 1991 and 1996 where the first forum was a federal court and the second was a state court. He found that state courts usually applied their own preclusion law and rarely gave any notice to the federal rules of preclusion. Out of the 286 preclusion cases found, state courts only cited to the federal law 22% of the time. Fortunately, the Semtek decision in 2001 brought clarity on interjurisdictional preclusion for state courts. Semtek gave a rule that the Full Faith and Credit Clause and Statute, as interpreted by the Supreme Court left unclear. It announced, as a matter of federal common law, the rule for state courts when addressing the preclusive effect of a federal court sitting in diversity. When the first forum is a federal court sitting in diversity, “the federally prescribed rule of decision, the law that would be applied by state courts in the State in which the federal diversity court sits.” I refer to this as the first part of the Semtek test. The state law should be applied unless “the state law is incompatible with federal interests.” I refer to this as the second part of the Semtek test. The Semtek opinion created a complicated two-part test for certain issues in interjurisdictional preclusion. This comment will analyze how state courts are implementing the Semtek opinion and compare the data with the Erichson study of state courts before Semtek. I conducted a study that looked for all state court cases since the Semtek decision that dealt with a Semtek issue arising from a prior adjudication in federal court. My research found that state courts are applying the first part of the Semtek rule about 53% of the time, which is over double the 22% rate found in Erichson’s study. These cases often correctly apply the first part of the Semtek test by looking to the state in which the federal diversity court sat for preclusion law. Despite this increased compliance, state courts only mention the second part of the Semtek test, considering compatibility with federal interests, 6% of the time. This comment then discusses the rates of states correctly applying the two-part Semtek test over time. This comment will conclude with a discussion of the implication of those findings and potential solutions.