A New Kind of Erie Rule

Law students become familiar with the rule of Erie v. Tompkins early in their studies. In short, the rule requires a federal court to apply the law of its forum state in diversity cases. Often, the case before the federal court presents a question that has not yet been decided by the forum state, so the federal court makes an "Erie Guess" about what the highest court of its state would do if presented with the same question. That much is relatively clear.

The 7th Circuit, though, has recently put a new wrinkle into the "Erie Guess". When there is no state law to guide the federal courts, and given a choice between an interpretation of law which restricts liability and one which expands liability, the 7th Circuit says that federal courts should choose the interpretation that denies recovery.

Reading the cases from the 7th Circuit on this issue, the most recent of which is Pisciotta v. Old National Bankcorp, No. 06-3817, August 23, 2007, there is no source for this reasoning, other than the 7th Circuit's own inclination to deny recovery to any Plaintiff with a novel theory of recovery. Are we really better off with courts that deny recovery for any case, just because the legal theory is new, undecided, or "novel"? That's not a particularly good rule, since the Pisciotta case involves a situation where a computer hacker obtained access to private identity information due to inadequate security measures by the defendant bank. That's a new theory because technology has changed the business of banking, not because some greedy lawyers have dreamed up a new way to sue for money. But, I would look for other circuits (4th, 5th, and 11th Circuits) to adopt this "Erie Guess" rule when they get the chance