Erie Doctrine
A: State Law in the Federal Courts
I. Judiciary Act of 1789 §34 – Rules of Decision Act: “The laws of the several states…shall be regarded as rules of decision in civil actions in the courts of the United States.”
A. Federal Constitution, treaties, etc. always trump state provisions.
B. State Law always controls where there are no conflicts with federal rules
C. Federal Law always controls for cases brought under Federal Question jurisdiction
D. The Issue = whose CL rules apply in Diversity actions?
II. Interpretation 1: Swift rule: RDA applies only to state statutory laws & certain local usages (real estate, other local issues), not to CL (except where state court interprets a state statute), so use Federal CL for “general matters.”
A. Justifications:
1. uniformity → Story (commercial lawyer) wanted to encourage interstate commerce by offering predictability & security to commercial agents.
2. natural law → federal judges shouldn’t have to follow the rulings of state judges on general matters. They should be free to examine the evidence for themselves and decide what the Law is (natural law ≠ majority rule).
i. by 1938 (Erie), judges no longer thought of law as “natural” – rise of legal realism.
B. Swift v. Tyson (p.372) – Tyson gave IOUs to speculators to purchase land they didn’t own. They gave the notes to Swift. Tyson doesn’t want to pay b/c he didn’t get the land. Diversity action. Decision turned on whether the federal court had to apply the NY common law (Tyson wouldn’t have to pay) or could use the emerging law of negotiable instruments (Tyson would have to pay if Swift didn’t know of the fraud).
III. Interpretation 2: Erie rule: Absent an Act of Congress providing governing law, a federal court should follow state CL principles in addition to state statutes.
A. Erie R. Co. v. Tompkins (p.374) – man walking on footpath & hit by object on train that cut off his arm. π brought a diversity action in federal court in NY to avoid PA rule that imposed a “duty to avoid wanton negligence,” rather than majority “duty of ordinary care.”
1. Neither party asks for Swiftto be over-ruled – π argued Swiftfor the legal benefit, & Δ argued that under Swiftthis was a local action (real estate) involving trespassing so PA law should apply (RR didn’t want Swiftoverruled b/c they liked being able to file in federal courts, which were viewed as being more pro-business).
2. Court overrules Swift anyway & implements new rule.
i. Swift was wrong: Warren discovered a draft of the Rules of Decision Act that included both state statutes & common law.
ii. Widespread Abuses: Forum Shopping: Choice of forum made by non-residents at the expense of residents (purp
Substantive, matters.
B. Considered the federal court as just another court of the state, therefore the outcome had to be the same
C. Problem: This test can go too far. If the approach were applied literally, virtually every federal procedural rule would have to be displaced in diversity cases by any different state rule b/c all procedural rules could affect the outcome to some degree – issues about housekeeping rules like the size of fonts in briefs seems a little extreme.
D. Guaranty Trust Co. v. York (p.381) – Cause of action by bond-holder for breach of fiduciary duty. Conflict between state S/L and the more flexible federal S/L. Justice Frankfurter says the cause of action was created in the state court, so if it was outlawed by the statute of limitations in the state court, it has to be outlawed in federal, too.
V. Byrd Balancing Test = Replaces “outcome determinative test” (3 parts):
A. (1) Is the state rule bound up with or an integral part of a state substantive right, and not just a housekeeping rule?
1. If it’s integral, apply state rule. If not, continue to step 2.
