285 F.3d 630 (7th Cir. 2002), 01-2139, Allstate Ins. Co. v. Menards Inc.

Docket Nº:01-2139
Citation:285 F.3d 630
Party Name:ALLSTATE INSURANCE COMPANY, as subrogee of Sam Lakhia, Plaintiff-Appellant, v. MENARDS, INCORPORATED, Defendant-Appellee.
Case Date:April 05, 2002
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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Page 630

285 F.3d 630 (7th Cir. 2002)

ALLSTATE INSURANCE COMPANY, as subrogee of Sam Lakhia, Plaintiff-Appellant,

v.

MENARDS, INCORPORATED, Defendant-Appellee.

No. 01-2139

In the United States Court of Appeals For the Seventh Circuit

DECIDED April 5, 2002

NOVEMBER 8, 2001

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 99 C 1583--Harry D. Leinenweber, Judge.

Page 631

Before BAUER, RIPPLE and WILLIAMS, Circuit Judges.

RIPPLE, Circuit Judge.

In this diversity case, the Allstate Insurance Company ("Allstate"), as subrogee of Sam Lakhia, appeals from the district court's dismissal of its claim for property damage founded on the doctrine of strict liability for a defective product. There is a disagreement among the intermediate courts of appeals in Illinois with respect to the applicable statute of limitations. The United States District Court for the Northern District of Illinois decided that it should follow the rule established by the state intermediate court for the state appellate district in which the lawsuit would have been brought. Accordingly, it determined that the present lawsuit had been filed beyond the time permitted by the statute of limitations and dismissed the action. Because we believe that the district court erred in its belief that it was required to follow the rule of the state intermediate court of appeals for the state appellate district in which the suit would have been brought, we reverse its decision on that issue. Finally, because of the importance of the question to the jurisprudence of Illinois, we certify to the Supreme Court of Illinois the issue of the applicable statute of limitations.

I BACKGROUND

Prior to December 18, 1994, Sam Lakhia or a member of his family purchased a torchiere halogen lamp in a Menards store in Hillsdale, Illinois. The lamp was placed in the family home in Bellwood, Illinois and situated along the south wall near the basement stairs for the purposes of providing ambient light. On December 18, there was a fire in the Lakhia home that resulted in a claim by Mr. Lakhia for $144,799.05 for property damage and related living expenses incurred as a result of the fire. Allstate, Lakhia's insurer and subrogee, paid the claim and then brought this action against Menards on March 10, 1999. The jurisdiction of the district court was based on the diverse citizenship of the Page 632

parties.1 Menards filed a motion to dismiss on the ground that the action was barred by the applicable statute of limitations.

In a hearing before the district court, the parties disagreed with respect to the applicable statute of limitations period for a products liability action. In Allstate's view, the applicable statute of limitations was five years. It relied upon the decision of the Second District in American Family Insurance Co. v. Village Pontiac-GMC, Inc., 538 N.E.2d 859 (Ill. App. Ct. 1989). Menards, on the other hand, submitted that the applicable statute of limitations was two years. It relied on the decisions of the First District in McLeish v. Sony Corp. of America, 504 N.E.2d 933 (Ill. App. Ct. 1987) and Calumet Country Club v. Roberts Environmental Control Corp., 483 N.E.2d 613 (Ill. App. Ct. 1985).2

In discharging their responsibility to ascertain the content of state law in diversity cases, the sitting judges of the Northern District of Illinois have developed two conflicting approaches when confronted with no controlling decision of the Supreme Court of Illinois and with conflicting decisions of the Illinois Appellate Court.3 Some judges have followed the standard Page 633

practice for a district court sitting in diversity and have attempted to predict how the Supreme Court of Illinois would resolve the question.4 Others have deemed themselves bound by the prevailing rule of the state appellate district in which the suit would have been brought in state court,5 reasoning that this approach would prevent forum shopping. The district court in this case had followed the latter approach in earlier cases and decided that, in the absence of explicit guidance from this court, it would not alter its course. Accordingly, it followed the decisions of the First District and held that the applicable statute of limitations was two years and dismissed the action.6

II DISCUSSION

A.

We first address whether the district court was correct in its decision to consider itself bound by the view of the state intermediate appellate court with jurisdiction over the Page 634

place where the action would be brought in the state court. Both parties before us, and all of the judges of the United States District Court for the Northern District of Illinois who have addressed the matter, acknowledge that the ultimate responsibility of the district courts is to apply the law of the state in which the court sits with respect to substantive matters. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). It is further beyond dispute that, as a general rule, statutes of limitation are considered to be substantive matters for purposes of the Erie doctrine. See Guaranty Trust v. York, 326 U.S. 99, 110 (1945).

As we have noted already, the district court, relying on its past practice as well as the practice of some other judges sitting in this particular district, took the view that, in the absence of a definite ruling by the Supreme Court of Illinois and faced with a conflict among the state's intermediate appellate courts, it was obliged to follow the rule established by the Illinois Appellate Court with jurisdiction over the place where the suit would have been filed, if it had been filed in state court. The view of the district court finds support in several published cases of the Northern District of Illinois. See, e.g., Abbott Labs. v. Granite State Ins. Co., 573 F.Supp. 193 (N.D. Ill. 1983); Comm'l Discount Corp. v. King, 552 F.Supp. 641 (N.D. Ill. 1982). As Menards points out in its brief, these cases consider the main focus of Erie to be a concern that "'for the same transaction the accident of suit by a nonresident litigant in a federal court instead of a State court a block away should not lead to a substantially different result.'" Abbott Labs., 573 F.Supp. at 197 (quoting Guaranty Trust, 326 U.S. at 109). The same theme, noted the district court in Abbott Laboratories, was expressed by the Supreme Court in Klaxon v. Stentor Manufacturing Co., 313 U.S. 487, 496 (1941), when the Supreme Court wrote that, unless state choice of law rules are treated as anything other than substantive, "the accident of diversity of citizenship would constantly disturb equal administration of justice in coordinate state and federal courts sitting side by side." Klaxon, 313 U.S. at 496. The rule articulated in Klaxon dealt with a state's choice of law rules governing when it would apply its own substantive law and when it would apply the substantive law of another state. The district court in Abbott Laboratories maintained, however, that Erie's concern with the equal administration of justice requires that the same approach be taken with respect to a state's "internal choice of law rule that requires the state trial courts in Illinois to follow the rule of the appellate court for the district in which it is located."7 Abbott Labs., 573 F.Supp. at 195. Thus, when "'state law' itself contains a definitive rule as to the way to ascertain 'state law' in case of intrastate appellate court disputes, we must follow that first 'state law' in order to learn the second 'state law.'" Comm'l Disc. Corp., 552 F.Supp. at 851. In short, said the district court, the "essential theory" of Erie is that "'a federal court must decide substantive questions in diversity cases in the same way that a state trial judge in the same location would.'" Id. at 847 (quoting Nat'l Can Corp. v. Whittaker Corp., 505 F.Supp. 147, 148 n.2 (N.D. Ill. 1981)).

In assessing this perspective, we believe that the most appropriate course is to start with Erie itself. There can be no doubt that, in setting forth the rule that a district court sitting in diversity must apply the law of the state in which it sits, the Supreme Court was concerned with forum shopping. See Erie, 304 U.S. at 74-75. It is necessary, however, to go behind this concern and to perceive the reasons for the Supreme Court's concern. Erie is not simply the product of a search for a salutary rule of judicial administration, but a holding that the Supreme Court explicitly said was constitutionally compelled: " Page 635

If only a question of statutory construction were involved, we should not be prepared to abandon a doctrine so widely applied throughout nearly a century. But, the unconstitutionality of the course pursued has now been made clear, and compels us to do so." Erie, 304 U.S. at 77-78. Noting the federal government's lack of constitutional authority to create substantive rules of law, the Supreme Court viewed its holding as restoring to the state governments the prerogative of fashioning principles of law in matters beyond the limited constitutional competence delineated for the federal government in the Constitution: Except in matters governed by the Federal Constitution or by acts of Congress, the law to be applied in any case is the law of the State. And, whether the law of the State shall be declared by its Legislature in a statute or by the highest court in a decision is not a matter of federal concern. There is no general federal common law. Congress has no power to declare substantive rules of common law applicable in a State whether they be local in their nature or "general," be they commercial law or part of the law of torts. And no clause in the Constitution purports to confer such a power upon the federal courts.

Id. at 78; see also...

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