How Federal Courts Address State Law Issues of First Impression - The Writ

It is not unusual for a case that is brought in federal court to include state claims that raise issues of first impression under state law. When that occurs, a federal court has two choices. First, either on motion from a party or sua sponte, a federal judge can certify a question of state law to the Nevada Supreme Court pursuant to NRAP 5. Alternatively, the federal court can use its best judgment to predict how the highest state court would resolve the question. Both strategies have benefits and pitfalls.

 Standard For Answering A Certified Question

 The Nevada Supreme Court may answer a certified question so long as certain criteria specified in NRAP 5 are met. According to NRAP 5(a), the Court may only answer questions of law that “may be determinative of the cause” and for which “there is no controlling precedent” from a Nevada appellate court. Only the United States Supreme Court, Court of Appeals, District Courts, or Bankruptcy Courts may certify a question.

 When answering a certified question, the Nevada Supreme Court “takes the facts as stated” in the certifying court’s order. U.S. Bank, N.A. as Tr. for Specialty Underwriting & Residential Fin. Tr. Mortg. Loan Asset-Backed Certificates Series 2006-BC4 v. Thunder Properties, Inc., 138 Nev. Adv. Op. 3 (2022). However, the Court may also consult the facts alleged in the federal court complaint. See In re Fontainebleau Las Vegas Holdings, 128 Nev. 556, 570, 289 P.3d 1199, 1207 (2012).

Procedure For Certifying Questions

 The certifying court must include the following items listed in NRAP 5(c) in its certification order:

1)      The questions of law to be answered;

2)      A statement of all facts relevant to the questions certified;

3)      The nature of the controversy in which the questions arose;

4)      A designation of the party or parties who will be the appellant(s) and the party or parties who will be the respondent(s) in the Supreme Court;

5)      The names and addresses of counsel for the appellant and respondent; and

6)      Any other matters that the certifying court deems relevant to a determination of the questions certified.

 The presiding federal judge must sign the certification order and have the certifying court’s clerk forward it under its official seal. Upon receipt. the certification order is docketed in the Supreme Court. The Supreme Court then decides whether to accept the certified question(s), request some or all of the record, order briefing and hear oral argument.

Once the Supreme Court answers the certified question, the clerk sends the opinion under the Supreme Court’s seal to the certifying court and the parties. The opinion is res judicata as to the parties.

 Application of NRAP 5

 The Court tends to issue fewer than a handful of opinions each year that answer certified questions. When it does, the opinions sometimes reveal divisions among the justices as to their respective views of Nevada law.

 For example, U.S. Bank, supra, was a declaratory relief action brought by a bank that held the first deed of trust on a house that was subject to an HOA foreclosure sale. The questions presented related to the applicable statute of limitations. After weighing whether various statutes were adequately analogous, the Court applied “the catch-all” limitations period set forth in NRS 11.220. A three-justice opinion concurring and dissenting in part challenged the majority opinion as being “impermissibly advisory” because it did not meet the criteria in NRAP 5 and was not tied to the claims alleged.

Nautilus Ins. Co. v. Access Med., LLC, 137 Nev. Adv. Op. 10, 482 P.3d 683 (2021), presented the question of whether an insurer is entitled to reimbursement of costs expended in defense of its insureds where a determination is made that the insurer owed no duty to defend and the insurer expressly reserved its right to seek reimbursement in writing after defense had been tendered but where the insurance policy contained no reservation of rights. Canvassing how the issue was addressed elsewhere, the Court answered the question in the affirmative based on “generally applicable principles of unjust enrichment and restitution.” A thee-justice dissenting opinion posited that such principles should not apply when a written contract exists, noting that “the majority's position should not be the rule in Nevada, as it is contrary to our precedent governing contractual relationships generally and insurance relationships in particular.”

 Predictions of State Law

 A federal court will:

 invoke the certification process only after careful consideration and do not do so lightly…In deciding whether to exercise our discretion, we consider: (1) whether the question presents important public policy ramifications yet unresolved by the state court; (2) whether the issue is new, substantial, and of broad application; (3) the state court's caseload; and (4) the spirit of comity and federalism.

 U.S. Bank, N.A., Tr. for Banc of Am. Funding Corp. Mortg. Pass-Through Certificates, Series 2005-F v. White Horse Ests. Homeowners Ass'n, 987 F.3d 858, 867 (9th Cir. 2021). If it decides not to certify a question, a federal court must “use its best judgment to predict how the highest state court would resolve it “using intermediate appellate court decisions, decisions from other jurisdictions, statutes, treatises, and restatements as guidance.” Strother v. S. Cal. Permanente Med. Group, 79 F.3d 859, 865 (9th Cir.1996) (quotation omitted). However, federal courts may not predict potential changes in state law. Moore v. R.G. Indus., Inc., 789 F.2d 1326, 1327 (9th Cir.1986).

 Implications

 For parties, the certification process can significantly delay a federal court proceeding, in some cases adding years to litigation. Once a federal court issues its decision, however, “[t]here is a presumption against certifying a question to a state supreme court” to prevent a party from getting “a second chance at victory ….” Thompson v. Paul, 547 F.3d 1055, 1065 (9th Cir. 2008). As a result, if there is concern as to how the federal court will decide a state law issue of first impression, filing a motion for certification may be the most prudent path forward.