480 U.S.

1
107 S.Ct. 967
94 L.Ed.2d 1

BURLINGTON NORTHERN RAILROAD COMPANY,

Petitioner,
v.
Alan WOODS and Cara Woods.
No. 85-1088.
Argued Nov. 4, 1986.
Decided Feb. 24, 1987.

Syllabus
An Alabama statute requires an appellate court, upon affirming a money
judgment without substantial modification, to impose a 10% penalty on
any appellant who had obtained a stay of that judgment by executing a
bond. The statute's purposes are to penalize frivolous appeals and those
interposed for delay, and to provide appellees with additional
compensation for having to suffer the ordeal of appeal. Upon affirming
without modification a judgment for respondents in their federal diversity
action arising from a motorcycle accident, the Eleventh Circuit imposed
the Alabama statute's penalty on petitioner, which had posted bond to stay
the judgment pending appeal.
Held: The Alabama mandatory affirmance penalty statute has no
application to judgments entered by federal courts sitting in diversity.
Pp.3-8
(a) Rule 38 of the Federal Rules of Appellate Procedure affords federal
courts of appeals plenary discretion to award damages to an appellee upon
determining that the appeal is frivolous. Federal Rule 38's discretionary
mode of operation conflicts with the Alabama statute's mandatory
operation. Furthermore, the purposes underlying Rule 38to penalize
frivolous appeals and to compensate injured appellees for the delay and
added expense inherent thereinare sufficiently coextensive with the
statute's purposes to indicate that the Rule occupies the statute's field of
operation. The fact that Alabama has a similar Appellate Rule coexisting

with the statute does not mean that a federal court could impose the
mandatory statutory penalty while remaining free to exercise its Federal
Rule 38 discretionary authority, since the statute would improperly limit
the exercise of that discretion in instances in which the court wished to
impose a penalty of less than 10%. Pp.4-8
(b) Rule 38 must be applied under the analysis set forth in Hanna v.
Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8, since (a) it is a
constitutional exercise of rulemaking authority in that it regulates matters
that can reasonably be classified as procedural, and (b) it affects only the
process of enforcing litigants' rights and not the rights themselves, and
therefore does not violate the Rule Enabling Act's prohibition against
affecting substantive rights (28 U.S.C. 2072). P.8.
Reversed.
MARSHALL, J., delivered the opinion for a unanimous Court.
L. Vastine Stabler, Jr., Birmingham, Ala., for petitioner.
James O. Haley, Birmingham, Ala., for respondents.
Justice MARSHALL delivered the opinion of the Court.

This case presents the issue whether, in diversity actions, federal courts must
apply a state statute that imposes a fixed penalty on appellants who obtain stays
of judgment pending unsuccessful appeals.

* Respondents brought this tort action in Alabama state court to recover

damages for injuries sustained in a motorcycle accident. Petitioner removed the
case to a Federal District Court having diversity jurisdiction. A jury trial
resulted in a judgment of $300,000 for respondent Alan Woods and $5,000 for
respondent Cara Woods. Petitioner posted bond to stay the judgment pending
appeal, and the Court of Appeals affirmed without modification. 768 F.2d 1287
(CA11 1985).

Respondents then moved in the Court of Appeals, pursuant to Ala.Code 1222-72 (1986), for imposition of that State's mandatory affirmance penalty of
10% of the amount of judgment. Petitioner challenged the application of this
statute as violative of the equal protection and due process guarantees of the
Fourteenth Amendment and as "a procedural rule . . . inapplicable in federal
court under the doctrine of Erie Railroad Company v. Tompkins, 304 U.S. 64,

58 S.Ct. 817, 82 L.Ed. 1188 (1938) and its progeny." App. to Pet. for Cert. A-5.
The Court of Appeals summarily granted respondents' motion to assess the
penalty and subsequently denied a petition for rehearing. The parties have
stipulated that the final judgment has been paid, except for the $30,500
statutory affirmance penalty, which petitioner has withheld pending
proceedings in this Court.
4

We granted certiorari to consider the equal protection and due process

challenges as well as the Erie claim. 475 U.S. 1080, 106 S.Ct. 1456, 89
L.Ed.2d 714 (1986). Because we conclude that the Alabama statute imposing a
mandatory affirmance penalty has no application in federal diversity actions, we
decline to reach the Fourteenth Amendment issues.

II
5

The Alabama statute provides in relevant part:

"When a judgment or decree is entered or rendered for money, whether debt or

damages, and the same has been stayed on appeal by the execution of bond,
with surety, if the appellate court affirms the judgment of the court below, it
must also enter judgment against all or any of the obligors on the bond for the
amount of the affirmed judgment, 10 percent damages thereon and the costs of
the appellate court. . . ." Ala.Code 12-22-72 (1986).1

As set forth in the statute, then, a combination of three conditions will

automatically trigger the 10% penalty: (1) the trial court must enter a money
judgment or decree, (2) the judgment or decree must be stayed by the requisite
bond,2 and (3) the judgment or decree must be affirmed without substantial
modification. E.g., Chapman v. Rivers Construction Co., 284 Ala. 633, 644645, 227 So.2d 403, 414-415 (1969). The purposes of the mandatory
affirmance penalty are to penalize frivolous appeals and appeals interposed for
delay, Montgomery Light & Water Power Co. v. Thombs, 204 Ala. 678, 684, 87
So. 205, 211 (1920), and to provide "additional damages" as compensation to
the appellees for having to suffer the ordeal of defending the judgments on
appeal. Birmingham v. Bowen, 254 Ala. 41, 46-47, 47 So.2d 174, 179-180
(1950).

Petitioner contends that the statute's underlying purposes and mandatory mode
of operation conflict with the purposes and operation of Rule 38 of the Federal
Rules of Appellate Procedure, and therefore that the statute should not be
applied by federal courts sitting in diversity. Entitled "Damages for delay,"

Rule 38 provides: "If the court of appeals shall determine that an appeal is
frivolous, it may award just damages and single or double costs to the
appellee." See also 28 U.S.C. 1912. Under this Rule, "damages are awarded
by the court in its discretion in the case of a frivolous appeal as a matter of
justice to the appellee and as a penalty against the appellant." Advisory
Committee's Notes on Fed.Rule App.Proc. 38, 28 U.S.C.App., p. 492.
9

In Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965), we set
forth the appropriate test for resolving conflicts between state law and the
Federal Rules. The initial step is to determine whether, when fairly construed,
the scope of Federal Rule 38 is "sufficiently broad" to cause a "direct collision"
with the state law or, implicitly, to "control the issue" before the court, thereby
leaving no room for the operation of that law. Walker v. Armco Steel Corp., 446
U.S. 740, 749-750, and n. 9, 100 S.Ct. 1978, 1984-85, and n. 9, 64 L.Ed.2d 659
(1980); Hanna, supra, 380 U.S., at 471-472, 85 S.Ct., at 1143-44. The Rule
must then be applied if it represents a valid exercise of Congress' rulemaking
authority, which originates in the Constitution and has been bestowed on this
Court by the Rules Enabling Act, 28 U.S.C. 2072.3 Hanna, 380 U.S., at 471474, 85 S.Ct., at 1143-45.

10

The constitutional constraints on the exercise of this rulemaking authority

define a test of reasonableness. Rules regulating matters indisputably
procedural are a priori constitutional. Rules regulating matters "which, though
falling within the uncertain area between substance and procedure, are
rationally capable of classification as either," also satisfy this constitutional
standard. Id., at 472, 85 S.Ct., at 1144. The Rules Enabling Act, however,
contains an additional requirement. The Federal Rule must not "abridge, enlarge
or modify any substantive right. . . ." 28 U.S.C. 2072. The cardinal purpose of
Congress in authorizing the development of a uniform and consistent system of
rules governing federal practice and procedure suggests that Rules which
incidentally affect litigants' substantive rights do not violate this provision if
reasonably necessary to maintain the integrity of that system of rules. See
Hanna, supra, at 464-465, 85 S.Ct., at 1140. Missis Publishing Corp. v.
Murphree, 326 U.S. 438, 445-446, 66 S.Ct. 242, 246, 90 L.Ed. 185 (1946); 19
C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure 4509, pp.
145-146 (1982). Moreover, the study and approval given each proposed Rule
by the Advisory Committee, the Judicial Conference, and this Court, and the
statutory requirement that the Rule be reported to Congress for a period of
review before taking effect, see 28 U.S.C. 2072, give the Rules presumptive
validity under both the constitutional and statutory constraints. See Hanna,
supra, at 471, 85 S.Ct., at 1144.

11

Applying the Hanna analysis to an analogous Mississippi statute which

provides for a mandatory affirmance penalty, the United States Court of
Appeals for the Fifth Circuit concluded in Affholder, Inc. v. Southern Rock,
Inc., 746 F.2d 305 (1984), that the statute conflicted with Rule 38 and thus was
not applicable in federal diversity actions.4 The Fifth Circuit discussed two
aspects of the conflict: (1) the discretionary mode of operation of the Federal
Rule, compared to the mandatory operation of the Mississippi statute, and (2)
the limited effect of the Rule in penalizing only frivolous appeals or appeals
interposed for purposes of delay, compared to the effect of the Mississippi
statute in penalizing every unsuccessful appeal regardless of merit. Id., at 308309.

12

We find the Fifth Circuit's analysis persuasive. Rule 38 affords a court of

appeals plenary discretion to assess "just damages" in order to penalize an
appellant who takes a frivolous appeal and to compensate the injured appellee
for the delay and added expense of defending the district court's judgment.
Thus, the Rule's discretionary mode of operation unmistakably conflicts with
the mandatory provision of Alabama's affirmance penalty statute. Moreover,
the purposes underlying the Rule are sufficiently coextensive with the asserted
purposes of the Alabama statute to indicate that the Rule occupies the statute's
field of operation so as to preclude its application in federal diversity actions.5

13

Respondents argue that, because Alabama has a similar Appellate Rule which
may be applied in state court alongside the affirmance penalty statute, see
Ala.Rule App.Proc. 38; McAnnally v. Levco, Inc., 456 So.2d 66, 67 (Ala.1984),
a federal court sitting in diversity could impose the mandatory penalty and
likewise remain free to exercise its discretionary authority under Federal Rule
38. This argument, however, ignores the significant possibility that a court of
appeals may, in any given case, find a limited justification for imposing
penalties in an amount less than 10% of the lower court's judgment. Federal
Rule 38 adopts a case-by-case approach to identifying and deterring frivolous
appeals; the Alabama statute precludes any exercise of discretion within its
scope of operation. Whatever circumscriptive effect the mandatory affirmance
penalty statute may have on the state court's exercise of discretion under
Alabama's Rule 38, that Rule provides no authority for defining the scope of
discretion allowed under Federal Rule 38.

14

Federal Rule 38 regulates matters which can reasonably be classified as

procedural, thereby satisfying the constitutional standard for validity. Its
displacement of the Alabama statute also satisfies the statutory constraints of
the Rules Enabling Act. The choice made by the drafters of the Federal Rules

in favor of a discretionary procedure affects only the process of enforcing

litigants' rights and not the rights themselves.
III
15

We therefore hold that the Alabama mandatory affirmance penalty statute has
no application to judgments entered by federal courts sitting in diversity.

16

Reversed.

Compare Ky.Rev.Stat. 26A.300 (1985) (mandatory 10% penalty for second

appeal); Miss.Code Ann. 11-3-23 (Supp.1986) (15% mandatory penalty
regardless of stay); Va.Code 16.1-113 (Supp.1986) (10% mandatory penalty
regardless of stay).

Under Alabama law, an appellant may obtain a stay of judgment pending

appeal by providing an acceptable surety bond of a set amount, which in this
case would have been 125% of the trial court's judgment had the case been tried
in state court. Ala.Rule App.Proc. 8(a)(1).

Article III of the Constitution, augmented by the Necessary and Proper Clause
of Article I, 8, cl. 18, empowers Congress to establish a system of federal
district and appellate courts and, impliedly, to establish procedural Rules
governing litigation in these courts. In the Rules Enabling Act, Congress
authorized this Court to prescribe uniform Rules to govern the "practice and
procedure" of the federal district courts and courts of appeals. 28 U.S.C. 2072.
Though Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965),
involved a conflict between state law and a Federal Rule of Civil Procedure, its
analytical framework provides the test for the validity of Federal Rules of
Appellate Procedure as well, since these Rules were also prescribed pursuant to
the Rules Enabling Act. See Advisory Committee's Notes on Fed.Rule
App.Proc. 1, 28 U.S.C. App., p. 466.

The Mississippi statute applies without regard to whether the judgment has
been stayed pending appeal. Miss.Code Ann. 11-3-23 (Supp.1986). In
Walters v. Inexco Oil Co., 725 F.2d 1014, 1016-1017 (1984), the Court of
Appeals for the Fifth Circuit held the statute applicable in federal diversity
actions. Later that year, in Affholder, Inc. v. Southern Rock, Inc., the Fifth
Circuit overruled Walters, supra, and expressly rejected a similar decision,
Proctor v. Gissendaner, 587 F.2d 182 (1979) (per curiam ), in which it had
applied the Alabama statute we are now considering. Affholder, 746 F.2d, at

311. In Gissendaner, supra, the court had held without discussing Hanna,
supra, that the Alabama statute dealt with a "non-federal substantive matter"
and therefore applied in diversity actions. 587 F.2d, at 184. This decision was
among those adopted as binding precedent by the Eleventh Circuit following its
creation in 1981, Bonner v. Prichard, 661 F.2d 1206, 1209 (1981), and it
provides the apparent rationale for imposition of the penalty in the present case.
5

Rule 37 of the Federal Rules of Appellate Procedure provides further indication

that the Rules occupy the Alabama statute's field of operation so as to preclude
its application in diversity actions. Since the affirmance penalty only applies if
a trial court's judgment is stayed pending appeal, see Ala.Code 12-22-72
(1986), it operates to compensate a victorious appellee for the lost use of the
judgment proceeds during the period of appeal. Federal Rule 37, however,
already serves this purpose by providing for an award of postjudgment interest
following an unsuccessful appeal. See also 28 U.S.C. 1961.
In addition, we note that federal provisions governing the availability of a stay
of judgment pending appeal do not condition the procurement of a stay on
exposure to payment of any additional damages in the event the appeal is
unsuccessful and, unlike the state provision in this case, allow the federal courts
to set the amount of security in their discretion. Compare Fed.Rules Civ.Proc.
62(d) and 62(g) and Fed.Rule App.Proc. 8(b) with Ala.Rule App.Proc. 8(b).
See also 28 U.S.C. 1651.