At the turn of the twenty-first century, the country entered its third era of judicial federalism. That era is defined by federal judicial expansion into areas of state-court power and federal monopolization of large and complex litigation. These changes, in turn, have coincided with the decay of state courts. Whether measured by funding, delays, or docket loads, state courts—the true workhorses of the American legal system—have declined relative to federal courts. Indeed, over the last decade, state chief justices have complained that state courts are “financially bankrupt,” “at ‘the tipping point of dysfunction,’” and “on the edge of an abyss.” This state-court decay could not come at a worse time—due to federal efforts to circumscribe access to court, there have been growing calls for a turn to state courts. But that turn cannot work without vibrant and well-funded state judiciaries. Thus, federal expansion and state-court decay represent the most fundamental developments in judicial federalism.

This Article explores the rise of federal courts and apparent fall of state courts and analyzes the relationship between these two developments. At its core, the Article makes the original claim that federal expansion may be contributing to the decay of state courts and has reinforced a plaintiff-defendant divergence between the two systems. In laying the groundwork for that argument, the Article offers three contributions. First, it provides the first historical periodization of judicial federalism, oriented around three broad eras with distinctive philosophies toward the federal-state allocation of cases. The Article presents significant evidence that in the 1980s and 1990s the country entered a new era of judicial federalism when, for the first time in the nation’s history, the federal government began to aggressively appropriate state-court litigation. Second, the bulk of the Article draws on a wealth of political economy literature and empirical data to step back and evaluate the potentially positive and negative effects of federal-court expansion. The third era has allowed institutional litigants to opt out of state courts, leading to negative distributional consequences for small-stakes litigants. For example, when federal courts siphon large litigants from state court, state legislatures lose existing political pressure to fund those courts, potentially leading to deteriorating judiciaries that ultimately affect family courts, employees, and consumers. This state-to-federal emigration of institutional litigants may also explain one of the most puzzling recent developments in civil procedure: while federal courts have embraced prodefendant procedural rules in the class action, personal jurisdiction, and pleading contexts, state courts remain relatively proplaintiff, leading to a clear divergence between the two systems and a host of normative concerns. Finally, after laying out these consequences, the Article briefly sketches a few potential remedies to improve state courts, including federal funding for state judiciaries and a push for more state complex litigation courts.