In Green Plains Trade Group, LLC v. Archer Daniels Midland Co., No. 23-1185 (7th Cir. Jan. 12, 2024), the Seventh Circuit vacates and remands a judgment dismissing a complaint in a diversity tortious-interference case, holding that the district court was possibly too cautious in its prediction of Nebraska law.
Plaintiff “Green Plains based its claim for tortious interference with contract on allegations that ADM unlawfully manipulated the price of ethanol downward, causing Green Plains to receive less money for the ethanol that it sold to third parties. Sitting in diversity and endeavoring to apply Nebraska state law, the district court indicated the Nebraska Supreme Court might adopt Green Plains’s theory. Nevertheless, the district court declined to do so here. Instead, the court read our case law as forbidding such a course because it constituted an application of state law in a manner not yet adopted by the Nebraska Supreme Court.”
The central legal dispute was over whether Nebraska law would recognize tortious interference absent an allegation of breach of contract. Plaintiff “relied on section 766A of the Restatement (Second) of Torts. This provision allows a plaintiff to bring a successful tortious interference with contract claim on the ground that the defendant interfered with his contract by causing his performance to be ‘more expensive or burdensome’ even if the contract was not breached.”
Because the Nebraska Supreme Court has not ruled on this specific issue, the district court was charged under Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), with predicting what the state’s highest court would decide. Here, despite concluding that the state high court might recognize “§ 766A-style claims as legitimate actions for tortious interference with contract,” it nevertheless dismissed the complaint, “based largely on its reading of [Seventh Circuit] cases cautioning district courts sitting in diversity against expanding state law.”
The Seventh Circuit vacates and remands. It starts with the guiding principle that when a federal court’s jurisdiction is predicated on diversity of citizenship, it “must apply state law as we believe the highest court of the state would apply it if the case were now before that tribunal rather than before our court.”
While the Erie prediction is simple when there is on-point, controlling authority from the state supreme court, it is more often “a delicate and, at times, arduous process” presenting “significant ambiguity.” Federal courts are directed to weigh the holdings of lower state courts, including “considered dicta,” for “clues as to how the highest court of the state might resolve the open question,” as well as to analogize from the state’s high court’s decisions in parallel areas, which “may yield important clues as to how the court might resolve the issue.”
“[F]ederal courts have developed, over the years, certain maxims of self-discipline designed to ensure that our inquiry remains focused on its sole legitimate objective: ascertaining the law that the highest court of the state would articulate if our case were before it today.” One such principle is “that, in the absence of persuasive reasons to the contrary, we will follow a holding of the state’s intermediate appellate court.” (In this case, though, the court locates no such intermediate appellate authority.)
“We also have regularly employed another ‘guardrail.’ We have said, albeit in varying formulations, that a federal court, faced with two equally plausible readings of state law, should not choose the alternative that requires us to predict a change or an expansion in extant state legal doctrine.”
Yet here, the Seventh Circuit holds that the district court may have erroneously relied on this preference to the exclusion of other, valid indicators of state law. The district court “read our case law to say that a district court must always opt for the interpretation of state law that is the most restrictive, even when the evidence as to the content of state law is not in equipoise and, in fact, points to the less restrictive option . . . . This approach would render of secondary importance the basic constitutional mandate of Erie that we must ascertain and apply state law as the highest court of the state would articulate it today,” even if it might lean in a more liberal direction.
“Here, the district court seemed to believe that the Nebraska Supreme Court might well be willing to apply section 766A. Yet, it also believed that it could not take that course because it required applying section 766A for the first time in Nebraska without explicit direction from the Nebraska Supreme Court. But there is no such impediment to a district court applying the rule it believes the highest court of the state would apply.”
The Seventh Circuit remands to give the plaintiff the opportunity to amend its complaint. “We think that, if Green Plains satisfactorily amends its complaint, the district court should reexamine its earlier determination of the content of Nebraska law. On remand, the district court may determine, unburdened of any misapprehension about the contours of its duty to ascertain state law, that the information before it reasonably establishes that the Nebraska Supreme Court would adopt section 766A.”
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