Binding Effect Of State Court Decisions On Federal Courts On State Law Issues

On at least a couple of posts, I have made references to comments made in the Florida Supreme Court decision in Pardo v. State, 596 So. 2d 665 (Fla. 1992) that sets forth the law in the State of Florida that unless and until the Florida Supreme Court decides an issue, and absent a conflicting decision with another Florida intermediate appellate court, the decision of any Florida District Court of Appeal is binding on all Florida trial courts throughout the state (and not merely on the trial courts physically located within the jurisdiction covered by the Florida appellate court issuing the decision).

The actual language from the Florida high court in Pardo follows:

"Initially, we note that the district court erred in commenting that decisions of other district courts of appeal were not binding on the trial court. This Court has stated that "the decisions of the district courts of appeal represent the law of Florida unless and until they are overruled by this Court." Stanfill v. State, 384 So. 2d 141, 143 (Fla. 1980). Thus, in the absence of interdistrict conflict, district court decisions bind all Florida trial courts. Weiman v. McHaffie, 470 So. 2d 682, 684 (Fla. 1985). The purpose of this rule was explained by the Fourth District in State v. Hayes:

• "The District Courts of Appeal are required to follow Supreme Court decisions. As an adjunct to this rule it is logical and necessary in order to preserve stability and predictability in the law that, likewise, trial courts be required to follow the holdings of higher courts--District Courts of Appeal. The proper hierarchy of decisional holdings would demand that in the event the only case on point on a district level is from a district other than the one in which the trial court is located, the trial court be required to follow that decision. Alternatively, if the district court of the district in which the trial court is located has decided the issue, the trial court is bound to follow it. Contrarily, as between District Courts of Appeal, a sister district's opinion is merely persuasive."
  333 So. 2d 51, 53 (Fla. 4th DCA 1976) (footnote and citations omitted).

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Issues of state law, however, are not only heard in the state courts, but in the Federal courts as well (ie. diversity jurisdiction cases, federal question litigation that include pendent state law claims, determination of property rights defined by state law arising in federal bankruptcy and tax law cases). It is important to point out that, under the Federal "Erie Doctrine," when deciding issues of Florida state law, the Federal Courts are bound by the decisions of the Florida state appellate courts when applying substantive law (as opposed to procedural law) when (1) there is no state high court precedent, (2) there is no conflict between or among a state's intermediate appellate courts, and (3) when there is no persuasive indication that the state high court would rule differently from an existing decision of a state intermediate appellate court.

As it specifically relates to Florida state law, the U.S. Court of Appeals for the 11th Circuit (which has jurisdiction over the lower Federal Courts - District and Bankruptcy - located in Florida) has specifically acknowledged this point on numerous occasions. See, for example:

McMahan v. Toto, 311 F.3d 1077; (11th Cir. 2002)

The court provided the following narrative in emphatically reminding us of this basic principle (in a case involving the application of Florida's offer of judgment statute; bold text is my emphasis):

• "Recent events in this case illustrate that "when we write to a state law issue, we write in faint and disappearing ink." Sultenfuss v. Snow, 35 F.3d 1494, 1504 (11th Cir. 1994) (en banc) (Carnes, J., dissenting). The disappearing ink here is that which we used in our previous opinion in this case to express our holding about whether the Florida Supreme Court would apply its offer of judgment statute, Fla. Stat. § 768.79, in a case tried in Florida but for which the substantive law of another state governed. There were no Florida decisions on point, and we made an Erie guess that the Florida Supreme Court would not apply the statute in those circumstances. As a result, we reversed the part of the district court's judgment awarding attorney's fees under the statute. McMahan v. Toto, 256 F.3d 1120, 1130-35 (11th Cir. 2001)."

• "Our earlier opinion was barely in the hardback books when the Fourth District Court of Appeal in Florida issued a decision disagreeing with our estimate of Florida law. See BDO Seidman, LLP v. British Car Auctions, Inc., 802 So. 2d 366 (Fla. 4th DCA 2001), review denied, 828 So. 2d 384, 2002 Fla. LEXIS 2048 (Fla. Sept. 24, 2002). If the BDO Seidman decision had been around when we issued our first decision in this case, we would have followed it. We would have been compelled to do so because the rule is that, absent a decision from the state supreme court on an issue of state law, we are bound to follow decisions of the state's intermediate appellate courts unless there is some persuasive indication that the highest court of the state would decide the issue differently. See Galindo v. ARI Mut. Ins. Co., 203 F.3d 771, 775 (11th Cir. 2000); Trumpet Vine Invs., N.V. v. Union Capital Partners I, Inc., 92 F.3d 1110, 1120 (11th Cir. 1996); Williams v. Singletary, 78 F.3d 1510, 1515 (11th Cir. 1996)."

• "That rule is, if anything, particularly appropriate in Florida, where the state's highest court has held that "the decisions of the district courts of appeal represent the law of Florida unless and until they are overruled by [the Florida Supreme Court]." Pardo v. State, 596 So. 2d 665, 666 (Fla. 1992) (quoting Stanfill v. State, 384 So. 2d 141, 143 (Fla. 1980))."

• "There is no persuasive indication that the Florida Supreme Court would not follow the Fourth District Court of Appeal's BDO Seidman decision on whether its offer of judgment statute, Fla. Stat. § 768.79, applies when the case is governed by the substantive law of another state."

• "The fact that we decided the issue differently is not a persuasive indication that the Florida Supreme Court would agree with us and not with one of its own intermediate appellate courts, which presumably knows more about Florida law than we do."

• "Nor is the fact that one of the three judges dissented on this point in BDO Seidman, 802 So. 2d at 374 (Polen, C.J., dissenting), a persuasive indication that the Florida Supreme Court would decide the issue differently."

• "Two is a majority of three, and a majority of participating judges controls a court's decision. See Fla. R. Jud. Admin. 2.040(a)(1) (2002) ("Three judges shall constitute a panel for and shall consider each case, and the concurrence of a majority of the panel shall be necessary to a decision.")."

• "The holding in BDO Seidman is and will remain Florida law until such time, if any, as the Florida Supreme Court has the inclination and opportunity to rule to the contrary."

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The reason I highlight this point is because it is highly likely that, as more and more litigation is brought against foreclosure rescue operators, much of the litigation will be conducted in the Federal courts. It may be that causes of actions by a homeowner against a foreclosure rescue operator for violations of the Federal Truth In Lending Act ("TILA") and the Federal Home Ownership Equity and Protection Act ("HOEPA") will be brought by a Federal practitioner in a Federal Court (although such actions can also be brought in state court).

Alternatively, it may be that financially strapped homeowners who are either facing foreclosure, or who are in the process of being illegally stripped of their homes by foreclosure rescue operators, may file for bankruptcy to halt the process; in which case, any foreclosure rescue litigation related to the case will likely take place in the Federal Bankruptcy Court.

It is important, both for the foreclosure rescue victim's legal counsel, as well as the Federal judge hearing the case, to understand that the Federal Courts are bound by the Erie Doctrine to apply the state law, as interpreted by the state judiciary, when deciding state law issues. Such issues, in the context of a foreclosure rescue litigation include, but are not limited to, the following:

• equitable mortgage claims,
• inapplicability of the Florida Residential Landlord Tenant Act when claims or defenses of equitable mortgage are asserted,
• sham loans that are disguised as sale leasebacks or otherwise,
• usury statutes (both civil and criminal) that apply to the disguised loans,
• violations of state unfair and deceptive trade practices statutes,
• common law fraud,
• conspiracy to commit fraud,
• constructive trust,
• voiding unconscionable contracts,
• voiding contracts of adhesion,
• etc.

Further, one pitfall to be avoided is for a Federal court to attempt to determine what the applicable state law is by looking at either its own prior decisions or those of other Federal courts sitting in the state in question. I, personally, have noted that, in the area of applying the Florida homestead law (relating to the exemption of the family homestead from forced sale), it is not uncommon to see some Federal Bankruptcy judges in Florida to seemingly give more weight to prior Federal Bankruptcy Court decisions applying the Florida homestead law than to the decisions of a Florida intermediate state appellate court (which are binding upon them, absent a state high court decision to the contrary), or even old Florida Supreme Court decisions. See, for example, In re Radtke, Case No. 05-30640 (Bankr. S.D. Fla. 2006), where, in my view, a misapplication of the Florida homestead law resulted in a significant loss of the debtors' homestead protection.

Based on the Erie Doctrine, Federal Court decisions on issues of state law are not binding precedent and, when relevant state appellate court decisions exist that are on point, the Federal court decisions have no controlling weight as precedent. As one Federal appellate court observed, in reviewing a lower court decision involving the ascertaining of the state law of California (bold text is my emphasis):

• "Like the district judge, the parties in this court seek to find California's law in the decisions of federal bankruptcy judges sitting in California, and they debate the significance of what these judges have said about the subject. Yet federal judges are not the source of state law or even its oracles. To find state law we must examine California's statute books and the decisions of its judiciary." (United Airlines v. HSBC Bank, 416 F.3d 609, 7th Cir. 2005).

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For an illustration of what, in my view, is the correct approach for a Federal District or Bankrutcy judge to take when they strongly disagree with the precedent of a Florida intermediate state appeals court decision when deciding an issue of Florida law, see the 11th Circuit's discussion, in Tobin v. Mich. Mut. Ins. Co., 398 F.3d 1267; (11th Cir. 2005), of the District Court judge's decision in that case. The 11th Circuit made the following comments:

1) "Although disagreeing with [the Florida intermediate appeals court], the district court then acknowledged that "[a] federal court applying state law is bound to adhere to decisions of the state's intermediate appellate courts absent some persuasive indication that the state's highest court would decide the issue otherwise.""

2) "The district court further noted that "the Supreme Court of Florida has held that decisions of district courts of appeal represent the law of Florida unless they are overruled by the Supreme Court of Florida." See Pardo v. State, 596 So. 2d 665, 666 (Fla. 1992). Because the Florida Supreme Court had not ruled on this issue, nor had any other Florida intermediate appellate court except Perez, the district court then sought to "determine whether there is any 'persuasive authority' that the Florida Supreme Court would decide this issue differently than the court in Perez."" [...]

3) "However, the district court ultimately concluded that Florida case law did not provide a "persuasive indication" that the Florida Supreme Court would decide the issue differently. (fn8). In this regard, the district court concluded:

• "In sum, although I disagree with the decision in Perez, and believe that the Third District failed to apply certain well-established principles of contract interpretation, I find no "persuasive authority" that the Supreme Court of Florida would decide this issue differently. I am, therefore, bound by the Third District's decision. Unfortunately, I lack the power to certify this issue to the Supreme Court of Florida, unlike the Eleventh Circuit. Perhaps, if there is an appeal, the parties will have the opportunity to truly discern the stance of Florida's highest court on whether Ford's insurance policy applies to retail lessees.""

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It appears clear that the Federal District Court judge, in Tobin v. Mich. Mut. Ins. Co., vigorously disagreed with the state court precedent from the Florida intermediate appellate court that was available to him and that he was "forced" to apply. However, he readily acknowledged that he was absolutely duty bound to apply the precedent from the Florida state appellate court in making his decision, notwithstanding how incorrect he thought that decision might have been (although he was clear in extending to the losing party an invitation to appeal his decision, in the hope that the 11th Circuit would certify the legal issue to the Florida Supreme Court; the 11th Circuit ultimately did just that).

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Go here for a list of links to several other 11th Circuit Court of Appeals decisions that reference the proposition that, on issues of state law, the Federal Courts are bound by the decisions of the state intermediate appellate courts when there is no precedent from the state high court and when there is no persuasive indication that the state high court would rule differently from an existing decision of a state intermediate appellate court.

Postscript

For those of you outside the jurisdiction of the 11th Circuit Court of Appeals (Florida, Georgia, Alabama), the following sampling of cases from other U.S. Circuit Courts of Appeal may be of some value to you in connection with the foregoing discussion (most citations and internal quotations omitted).

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1) Hamm v. Latessa, 72 F.3d 947 (1st Cir. 1995), ("Whether state statutes shall be construed one way or another is a state question, the final decision of which rests with the courts of the State. The due process of law clause in the Fourteenth Amendment does not take up the statutes of the several States and make them the test of what it requires; nor does it enable this Court to revise the decisions of the state courts on questions of state law.")

2) Universal Acupuncture Pain Servs., P.C. v. Quadrino & Schwartz, P.C., 370 F.3d 259; (2nd Cir. 2004) ("We are bound, as was the district court, to apply the law as interpreted by New York's intermediate appellate courts . . . unless we find persuasive evidence that the New York Court of Appeals, which has not ruled on this issue, would reach a different conclusion." (citations omitted))

3) 181 South Inc. v. Fischer, 454 F.3d 228; (3rd Cir. 2006) ("When interpreting a State regulation, we generally defer to the interpretations of state trial or intermediate appellate courts. See Nationwide Mut. Ins. Co. v. Buffetta, 230 F.3d 634, 637 (3d Cir. 2000) ("The opinions of intermediate appellate state courts are 'not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise.'"))

4) Jones v. Liberty Mutual Ins. Co. (In re Wallace & Gale Co.), 385 F.3d 820; (4th Cir. 2004) ("where an intermediate appellate state court rests its considered judgment upon the rule of law which it announces, that is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise.")

4a) Sanderson v. Rice, 777 F.2d 902, 905 (4th Cir. 1985) (noting that "[a]n opinion of an intermediate appellate court is persuasive in situations where the highest state court has not spoken").

5) Tex. Dep't of Hous. & Cmty. Affairs v. Verex Assurance, Inc., 68 F.3d 922 (5th Cir. 1995) ("a decision by an intermediate appellate state court is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise.")

6) Hampton v. United States, 191 F.3d 695, 700-01 (6th Cir. 1999) ("Generally, in order to analyze a conflict between a federal interpretation of state law and a subsequent determination by an intermediate state court: Where an intermediate appellate state court rests its considered judgment upon the rule of law which it announces, that is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise[.]")

7) Allstate Ins. Co. v. Menards, Inc., 285 F.3d 630; (7th Cir. 2002) ("in the absence of prevailing authority from the state's highest court, federal courts ought to give great weight to the holdings of the state's intermediate appellate courts and ought to deviate from those holdings only when there are persuasive indications that the highest court of the state would decide the case differently from the decision of the intermediate appellate court.")

8) Holden Farms, Inc. v. Hog Slat, Inc., 347 F.3d 1055; (8th Cir. 2003) ("Although "various intermediate appellate [state] courts are not [binding on us], . . . they are persuasive authority, and we must follow them when they are the best evidence of what [state] law is." Garnac Grain Co. v. Blackley, 932 F.2d 1563, 1570 (8th Cir. 1991). Further, the Supreme Court has held that an intermediate state appellate court's decision "is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise."")

9) Hangarter v. Provident Life & Accident Ins. Co., 373 F.3d 998; (9th Cir. 2004) ("It is well established that a state court's interpretation of its statutes is binding on the federal courts unless a state law is inconsistent with the federal Constitution. ... The California Court of Appeal's announcement of a rule of law "'is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise . . . .'" ")

10) Combs v. PriceWaterhouse Coopers, LLP, 382 F.3d 1196; (10th Cir. 2004) ("While not binding on this court, decisions by a state's intermediate appellate courts provide evidence of how the state's highest court would rule on the issue, and we can consider them as such." [...] We will not disregard such intermediate rulings "unless [we are] convinced by other persuasive data that the highest court of the state would decide otherwise.")

11) Waremart Foods v. NLRB, 359 U.S. App. D.C. 312; 354 F.3d 870; (D.C. Cir. 2004) ("Given the absence of any controlling precedent from the California Supreme Court, we will follow these intermediate appellate decisions. Here, as in a diversity suit, if an intermediate appellate state court rests its considered judgment upon the rule of law which it announces, that is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise.")

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