The role of the reciprocity requirement in the harmonization of standards for the recognition and enforcement of foreign judgments

III) Rejecting the Reciprocity Requirement by Federal Courts

Giving the fact that there are two independent judicial systems in the United States represented by both state and federal courts, each judicial body is bound by the decisions of its highest courts and its laws. This means that state courts have to follow rules of laws of the state in which it is located to adjudicate cases that are represented before it^262(*), and federal courts are bound by the decisions of the Supreme Court.

Yet, federal courts have jurisdiction not only in cases that arises either under the Constitution or federal statutes and international treaties^263(*), but also over state claims in which there is presence of federal claim in the action^264(*). As a result, it is sometimes difficult for federal courts to determine which law must apply in cases which are not governed by only the federal law.

The rule that was applied by federal courts for decades consisted in the fact that federal courts are not bound to follow state-court decisions. Those decisions were not considered as the «law» but only as a mere «evidence of what the laws are»^265(*). This rule, named the «Swift doctrine», had given the federal courts a great independence in determining the applicable law in cases involving state laws^266(*) and established what was called «federal common law». Hence, even after the decision of the New York Court of Appeal and even though most American state courts generally abandoned the reciprocity requirement as a ground to give effect to foreign judgments^267(*), federal courts continued to be bound by stare decisis of the Hilton reciprocity requirement for many years^268(*). The rule of reciprocity was considered as a part of the federal common law, and consequently, federal courts were required to apply it when they sit in diversity cases^269(*).

However, the Supreme Court itself confirmed, twelve years after Johnston case, the decision of the New York Court of Appeal in its landmark case Erie Railroad Co. v. Tompkins decided in 1938, and thus, radically changed the relationship between state and federal courts^270(*). The Supreme Court held that there is no general federal common law, and that federal courts sitting in diversity are constitutionally bound to follow substantive law of the state in which they are sitting outside of the narrow sphere of legitimate federal interests^271(*).

The decision had a great impact on the recognition practice in the United States. In fact, even though the Erie case involved only an issue concerning tort liability for interstate railroad^272(*), the Supreme Court's decision indirectly decreased further the applicability of Hilton reciprocity. The Supreme Court stated that since there is no constitutional provision for the applicability of "federal common law" and in the absence of congressionally enacted statutes or treaty provisions, state law - reflected either by the decisions of the highest courts of each state or by states enacted statutes - shall govern the state dispute rather than federal law. Consequently, a federal court sitting in diversity actions must follow this direction and refrain from applying the Hilton's reciprocity rule as a condition in giving effect to foreign judgments given the fact that most states in the U.S have rejected the reciprocity rule. As a result, federal courts exercising diversity-of-citizenship actions were bound to state law on the issue of reciprocity^273(*). Three years later the Supreme Court went further by extending the Erie doctrine to the area of conflict of laws in its case Klaxon Co. v. Stentor Elec. Mfg. Co. decided in 1941.

The Erie's case gave the opportunity to federal courts to ignore the rule of the Hilton opinion on reciprocity on the ground that the decision lays beyond the scope of legitimate federal concern^274(*). The Federal courts then were not only freed from the Hilton reciprocity, but also they chose not to consider the reciprocity rule in evaluating the status of the foreign judgment in the absence of guidance policy from the state law.^275(*)

That was the case of the United States Federal District Court for the Eastern District of Pennsylvania (the Third Circuit Court of Appeal) in Somportex Ltd v. Philadelphia Chewing Gum Company where the court, after confirming the applicability of state law by federal courts sitting in diversity cases,^276(*) had to determine «whether the courts in Pennsylvania would hold that reciprocity is a necessary precondition to the enforcement of foreign judgments». But the issue of enforceability of foreign judgments had not been litigated in Pennsylvania since the court did not find any case law which requires reciprocity as an essential precondition to the enforcement of foreign judgments. The court went on to hold that «in absent of a positive showing that Pennsylvania would follow the Hilton decision with respect to reciprocity, this court will not presume that it would adhere to such undermined concept. This court finds that if presented with this issue, Pennsylvania courts would follow its neighbouring states of New York and expressly reject this concept.^277(*)»

Therefore, even though the Hilton reciprocity was not overruled, it was at least invalidated by Erie. Federal courts are required to apply state law when the case comes to an issue of reciprocity and they are no longer bound by the Hilton's ruling when they sit in diversity cases^278(*). This led to a dispatch of state law in the subject since each state adopted its own standard for the recognition of foreign judgments with the majority without the reciprocity requirement which will be reflected on the state laws.

* ²⁶². Note that state courts are bound by Supreme Court's decision and federal courts' decision whenever those decisions are governed by federal law which should be respected by all courts in the United States. Outside this limited sphere, state courts and legislators are free to choose their own policies.

* ²⁶³. 28 U.S.C section1331 (1994).

* ²⁶⁴. Id

* ²⁶⁵. Swift v. Tyson US SC 1842,

* ²⁶⁶. Luther L. McDougal, Robert L. Felix, Ralph V. Whitten, American Conflicts Law, Transnational Publishers, 5^th edition, p218

* ²⁶⁷. American Law Institute, Reporter's note 2, p. 99

* ²⁶⁸. However, it was argued that even though federal courts were required to apply reciprocity as part of federal common law, federal courts showed reluctance to use the reciprocity defence as required by the Supreme Court in Hilton. In fact, except the Hilton case, reciprocity has never been used as a sole argument to reject the recognition or enforcement of foreign judgments. See William G. Southard, Reciprocity Rule and Enforcement of Foreign Judgments, Columbia Journal of Transnational Law, 1977, p,328.

* ²⁶⁹. When federal courts hear a dispute between two parties from different states or different countries and the amount is over $75.000, it is exercising a diversity jurisdiction over the parties.

* ²⁷⁰. Katherine R. Miller, Playground Politics: Assessing the Wisdom of Writing a Reciprocity Requirement into U.S International Recognition and Enforcement Law, Georgetown Journal of International Law, winter 2004, p.251 available at www.westlaw.com.

* ²⁷¹. Erie Railroad Co. v. Tompkins

* ²⁷². William G. Southard, Reciprocity Rule and Enforcement of Foreign Judgments, Columbia Journal of Transnational Law, 1977, p,328.

* ²⁷³. Id, p.342

* ²⁷⁴. Id

* ²⁷⁵. Id

* ²⁷⁶. The court held that «the Hilton decision was a pre-Erie R.R. Co. v. Tompkins case and it has never been suggested that it was constitutionally dictated and therefore biding on states. It is clear...that the law governing the enforceability of foreign judgments by federal courts is the law of the state where the court is located.»

* ²⁷⁷. Id. This was also the decision of the Arkansas federal court in Toronto-Dominion Bank v. Hall where the court had followed the approach of the Third Circuit Court of Appeal in Somportex and held on similar grounds to Somportex to not impose reciprocity as a condition to the enforcement of a foreign judgment. William G. Southard, The Reciprocity Rule and Enforcement of Foreign Judgments, Columbia Journal of Transnational Law, p.343

* ²⁷⁸. Id, p 341