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1. Spot an Erie problem
2. What does Erie Doctrine do?
3. What are the more difficult questions about applying the Erie Doctrine?
i. When is it an issue of substance, or a different issue of law that would require
the application of state law or federal law?
B. THE ISSUE—CHOICE OF LAW
1. When a federal court sits in diversity jurisdiction, which law does it apply?
i. Example—Federal Court has Diversity Jurisdiction over a state negligence
a. Does it apply the state law? Or Federal Law?
ii. When federal courts have jurisdiction by virtue of a federal question, it is
clear that federal law applies. The federal law that is the source of the federal
question is the law that applies.
a. It is more difficult when actions are brought on the basis of diversity
iii. When determining whether to apply Erie and its progeny, be sure that the
case involves a federal court sitting in diversity jurisdiction
2.28 U.S.C. §1652—Rules of Decision Act
i. “The laws of the several states, except where the Constitution or Acts of
Congress otherwise require or provide, shall be regarded as rules of decision in
civil actions in the courts of the US, in cases where they apply.”
a. Courts struggle with this language
3. Swift v. Tyson
i. Involved a bill of exchange, a halfway step between a promissory note and a
modern check. With promissory notes, there are numerous defenses assertable
by anyone sued for breach; with checks those defenses are much more limited
ii. ISSUE—Which law applied to the substantive question of how many defenses
may be asserted.
a. Diversity case filed in a federal court in NY.
b. Possible laws to derive the answer from—state statutes, federal
statutes (none exist on the issue here), precedent, regulations,
iii. Tyson’s argument—even though the case is in Federal Court, the Court
should apply NY state law because that is where the facts occurred.
a. NY Courts had spoken on the substantive issue, ruling that bills were
subject to a number of defenses.
b. Were these NY cases part of “the laws” of that state and thus binding
on the federal district court?
c. HOLDING—No, NY cases were not binding on federal court.
1. Federal Court says it can look to “general law” and can
declare what the best law is
2. Swift went on to reach a conclusion different from that
reached by the NY courts on the issue
iv. RULE—The Court held that the Rules of Decision Act did not include state
common law precedent. The “laws of the several states” only included statutes
and other forms of positive law. It does not include state courts’ interpretations
of laws. Therefore, federal courts sitting in diversity did not have to apply
precedent set forth by State courts; instead, the Rules of Decision Act only
requires that federal courts apply state statutes.
a. What does “law” mean?
1. Statutes, regulations, CXN (US and state), case law (Evidence
of what the law means)
v. After Swift, Federal Courts were basically free to ignore state case law.
a. State case law just becomes one of the reference sources Federal
Courts can look to in deciding what the Federal Law should be
b. IF THERE IS A STATE STATUTE, STILL MUST FOLLOW THAT STATE
vi. KEY POINT—When a Federal Court is sitting in Diversity, they need not follow
state case law, but can look to federal common law/general law to declare what
the best law is
C. CONSTITUTIONALIZING THE ISSUE
1. Erie Railroad v. Tompkins (1938)
i. Facts: Tompkins was walking home alongside the railroad tracks of the Erie
Railroad. He kept several feet between him and the tracks. As a train passed,
an open door struck him, knocked him down, and he severed his arm
underneath the train. Tompkins brought suit against Erie Railroad in federal
district court in New York based on diversity. Tompkins is a citizen of NY and the
Railroad is a citizen of PA. The accident occurred in Pennsylvania. Pennsylvania
law required that the railroad have committed “wanton negligence” since
Tompkins was a trespasser (higher standard of negligence, federal law allowed
ordinary negligence). However, the federal court instructed the jury on ordinary
negligence; he did not apply Pennsylvania law based on Swift v. Tyson.
(obviously Swift encourages forum shopping). Where would the court find the
standard for negligence in PA? Case law
ii. Issue: When a federal court is sitting in diversity, what law should apply in
terms of the substance of the case?
iii. Holding: The law to be applied in any case is the law of the state. There is no
federal general common law. Erie requires that federal courts apply state
common law when they are sitting in diversity.
a. First, the Court finds that the Swift court misinterpreted the Rules of
Decision Act. The purpose of the Act was to include not just written
statutes, but also the common law of the states.
b. Policy concerns with Swift:
1. Swift encourages non-citizens to forum shop within the state
to find favorable law.
i. Black & White Taxicab Co. v. Brown & Yellow Taxicab
a. RR and taxi companies want to execute
b. Kentucky (where both were from) does not
allow these agreements
c. One of the companies decides to re-
incorporate in Tennessee, so that any
controversies can be settled by Diversity in
Federal Court to take advantage of general law,
which allows exclusivity agreements
2. Diversity jurisdiction was intended to provide a neutral forum
for litigation between citizens of a state and non-citizens.
However, Swift introduced a way for non-citizens to
discriminate against citizens.
3. Lack of uniformity; the result of Swift meant that the laws of
a state were applied differently depending on whether the
action was brought in federal or state court. This denies state
citizens the “equal protection of the laws” because non-citizens
could bring the action in federal court to apply a different
interpretation of state law
c. Constitutional basis:
1. Swift could be in violation of the CXN; the Court also
determined that there was no such thing as federal common
law. This changes the analysis from simply a statutory
construction case to a case with cxnal implications.
2. The argument is rooted in Art.III, which gave Congress the
power to create lower federal courts of limited jurisdiction.
3. The Court also argues that the Swift decision created
4. The Court also points out that Congress does not even have
the power to legislate in the areas of “general common law”
that is reserved to the states.
5. There is no Constitutional basis for holding a federal common
law; takes away power that is given to the several states
(federalism argument); equal protection concerns there may be
a discrimination against a particular state by those outside the
state seems to favor those outside the state because they can
remove it to federal court and receive lighter treatment;
separation of powers concerns if you allow federal common law
almost becomes like a legislature because it makes common law
dealing with everything it hears.
6. Therefore, the Court holds that there is no federal common
law; instead, the federal court sitting in diversity is bound to
follow the law of that state, even if it is judge-made common
d. KEY POINT: When a Federal Court is sitting in diversity, the statutes
of the state and the common law of the state in which they’re sitting
should be followed—THERE IS NO GENERAL FEDERAL LAW!!
1. This case overrules Swift v. Tyson, the leading pre-Erie case.
2. Conflicts question: which state law applies?
D. THE LIMITS OF STATE POWER IN FEDERAL COURT
1. In the years since Erie, the Supreme Court has addressed questions in an effort to
mediate between opposing principles:
i. That Erie requires deference to State Courts as lawmaking bodies
ii. That Federal Courts are an independent judicial system
2. QUESTION REMAINING—When may Federal Courts use Federal Law instead of State
3. Guaranty Trust Co. v. York (1945):
i. Facts: Plaintiff sued a bond trustee in a federal diversity action alleging
misrepresentation and breach of trust. NY substantive law governed. Defendant
invoked NY SOL. Plaintiff argued that the SOL did not bar the suit because it was
on the “equity side” of federal court. Courts in equity did not traditionally
consider themselves bound by SOLs.
ii. Issue: Whether, when no recovery is possible in state court because the
action is barred by the SOL, a federal court in equity can take cognizance of the
suit because there is diversity of citizenship between the parties.
iii. Manner /means (fed. Law) vs. substance (state law)
iv. Holding: No. Action is barred. (no federal doctrine of laches)
v. Would the law effect the outcome of the case—substance
vi. RULE: Outcome Determinative Rule—courts should insure that a case that
could be filed in state would have the same outcome if it was filed in federal
a. A state rule that was outcome-determinative was to be followed, no
matter how it might be labeled.
vii. Reasoning: Courts need to cut down on “forum shopping.”
viii. Traditional Substance v. Procedure rule
a. Substance Question—apply state law
b. Procedure Question—apply federal law
ix. Court says—don’t give too much weight to this substance v. procedure rule
a. The question is whether such a statute concerns merely the manner
and the means by which a right to recover, as recognized by the State, is
enforced, or whether such statutory limitation is a matter of substance
in the aspect that alone is relevant to our problem, namely, does it
significantly affect the result of a litigation for a federal court to
disregard a law of a State that would be controlling in an action upon
the same claim by the same parties in a state court?
x. TEST—MANNER & MEANS
a. The way in which the Π goes about vindicating his rights
b. If the law to be applied relates to the manner & means—APPLY
xi. TEST—OUTCOME DETERMINATIVE TEST
a. If applying state law and applying federal law would give rise to
b. If the law to be applied significantly affects the result of a litigation—
APPLY STATE LAW
4. Ragan v. Merchants Transfer & Warehouse Co.
i. ISSUE—When does a lawsuit begin, for statute of limitations purposes—when
filed (Rule 3) or when served (KS practice)?
ii. HOLDING—State law followed
5. Cohen v. Beneficial Indus. Loan Corp.
i. ISSUE—NJ statute required small shareholder suing corporation to post bond
for expenses; Rule 23.1 did not so require
ii. HOLDING—State law followed
6. Bernhardt v. Polygraphic Co. of America
i. ISSUE—VT barred arbitration of employment practices; federal statute
arguably required arbitration
ii. HOLDING—State law followed
7. Woods v. Interstate Realty Co.
i. ISSUE—MS statute barred out-of-state corporations not paying MS taxes from
suing in state courts; should federal diversity court do so?
ii. HOLDING—State law followed (Court didn’t consider possible effect of Rule
17(b): look to state of incorporation)
8. Byrd v. Blue Ridge Rural Electric Cooperative (SC- 1958):
a. Facts: Plaintiff was injured while on a construction job for defendant;
sued in tort. Although he was employed by an independent contractor,
defendant contended plaintiff was doing the same work as defendant’s
regular employees and, therefore, was a “statutory” employee whose
exclusive remedy was under the SC Workmen’s Comp Act. The issue of
immunity came up, which is a matter for the judge under SC law, but a
matter for a jury under federal law.
b. Issue: Should the state policy of having the judge decide a particular
issue of fact trump the federal rule of having a jury decide in the
interest of uniformity of outcome?
c. Holding: Federal law applies and the jury should decide in this case.
d. RULE: The federal practice will be used when it is not certain that using
the federal rule will be outcome-determinative.
1. Questions Brennan asks:
i. Whether the issue is bound up with state-created
rights and obligations in such a way that its application
in the federal court is required – OR,
ii. Is it an issue of form and mode + Outcome
Determinative (if outcome determinative, then state
law should apply)
iii. Is there an “affirmative countervailing
2. First look at SC Workmen’s Compensation Act—Erie requires
that Federal Court sitting in diversity examine the substance of
the state law
i. Looking to see what kind of importance the state
places on whether a judge or jury hears these cases in
ii. Is choice of judge/jury “bound up with state-created
rights and obligations”?
a. Justice Brennan find that it is NOT
b. [If found that it was—he would apply state
iii. This is an issue of FORM & MODE
a. Is this outcome determinative?
1. If yes—apply state law
2. If no—apply federal law
b. Brennan finds that we don’t know if it’s
1. In this case, looking to affirmative
2. Here, 7th
(1) “Bound up with rights and obligations”?
o If “yes”, apply state law.
o If “no”, it is a “Form & Mode” issue.
(2) “Form & Mode”
o Is this OUTCOME DETERMINATIVE?
If yes—apply state law
If no—apply federal law
If unsure—look to affirmative countervailing considerations
E. De-Constitutionalizing Erie
1. Under both Guaranty Trust and Byrd, Erie questions are constitutional matters;
whether federal courts should follow the state practice is a constitutional question.
i. That framing of the issue is consistent with Erie itself, which rejected the
invitation to reach its decision as an interpretation of the Rule of Decision rather
than the Constitution.
2. Hanna v. Plumer
i. While purporting to overrule none of the cases in the Erie line, this case
reframes the issue as one of statutory rather than constitutional interpretation.
3. FRCP v. State RCP conflict
i. Article III, §1 power to create federal court also gives Congress power to write
rules of Civil Procedure that govern federal courts
ii. Questions to ask:
a. Is this a rule of civil procedure?
b. Would applying FRCP disturb purposes of Erie?
ii. FRCP governs in Federal Court
4. Hanna v. Plumer (1965):
i. Facts: This case arose out of a diversity suit for personal injuries where the
defendant was the estate of one of the drivers involved. Mass. law required
personal service of process on a defendant served as executor of an estate, but
Rule 4, which plaintiff followed, allowed for the complaint to be left with a
competent adult at the residence of any defendant. Plaintiff left the complaint
with the defendant’s wife at his house. (This is outcome-determinative because
the legitimacy of service depends on which one we use).
ii. Defendant argues: Guaranty Trust (York) says that if the rule is outcome-
determinative, the state rule must be applied
iii. Plaintiff says: FRPC are a special case when referring to Erie because they’ve
been around for a long time and we shouldn’t just throw them out because of
iv. Issue: Whether, in a civil action where the jurisdiction of the US district court
is based upon diversity of citizenship between the parties, service of process
shall be made in the manner proscribed by state law or that set forth in Rule
4(e)(2)(B) of the FRCP.
v. Holding: The Rule under the FRCP is the standard against which the district
court should have measured the adequacy of the service. Reversed.
a. Rules Enabling Act, 28 U.S.C. § 2072: The SupCt has the power to
prescribe, by general rules, the forms of process, writs, pleadings, and
motions, and the practice and procedure of the district courts of the US
in civil action. Such rules shall not abridge, enlarge of modify any
substantive right and shall preserve the right of trial by jury. (Through
this Act, Congress gives the SupCt the power to make the federal rules,
and the SupCt gives the power to the rules committee)
b. “The test must be whether a rule really regulates procedure—the
judicial process for enforcing rights and duties recognized by
substantive law and for justly administering remedy and redress for
disregard of infraction of them.”
vi. Reasoning: It is difficult to argue that permitting service of defendant’s wife
to take the place of personal service on him alters the mode of enforcement of
state-created rights in a fashion sufficiently substantial to raise the sort of equal
protection problems to which Erie alluded.
a.“To hold that a FRCP must cease to function wherever it alters the
mode of enforcing state-created rights would be to disembowel either
the CXN’s grant of power over fed. procedure or Congress’ attempt to
exercise that power in the Enabling Act.”
1. The Erie rule has never been invoked to void a federal rule.
c. The outcome-determination test (from Guaranty Trust) cannot be
read without reference to the twin aims of the Erie rule:
discouragement of forum shopping and avoidance of inequitable
administration of the laws. The court says this rule is not a “talisman.
1. We’re not worried about forum shopping because no one is
going to choose fed or state court based on service of process
rules. We’re not worried about inequitable administration of
laws because once this case is settled, no one will argue about
vii. RULE: If there is a conflict between a state law and federal rule of
procedure, follow federal law if the rule is made pursuant to the REA and does
not abridge, enlarge, or modify a substantive right.
viii. Concur [Harlan]: The proper line of approach in determining whether to
apply fed or state law, whether substantive or procedural, is to stay close to
basic principles by inquiring if the choice of rule would substantially affect those
“primary decisions respecting human conduct” which our cxnal system leaves to
state regulation. If so, Erie and the CXN require that the state rule prevail, even
in the face of a conflicting fed rule.
a. Public uncertainty over which laws govern would be debilitating.
a. Summary: Outcome determinative judgments are important for
deciding if a state or federal rule applies, but in this case, denying the
federal rule would remove any power whatsoever that the fed courts
have over their procedures.
b. Hanna analysis (fed practice flowing from fed rule/statute): Do the
rules conflict? If no, then use fed rule. If yes, go through this analysis:
1. Is the statute/rule constitutional? If yes, the court must
follow the dictates of that statute.
2. Is the Rules Enabling Act constitutional?
3. Does the rule promulgated under the authority of the Rules
Enabling Act in fact fit its description: “rules of practice and
procedure?” (HW: this is kind of a false question. They’re never
ruled against a FRCP)
i. IF the rule passes these tests, then it must be applied,
even if it differs from the state practice in a significant
F. DETERMINING THE SCOPE OF FEDERAL LAW: AVOIDING AND ACCOMMODATING ERIE
1. Under Hanna’s reading of Erie, many Erie questions will not require resort to the
Constitution because Congress by statute will have told federal courts what to do in the
i. So long as the statute is constitutional and one knows what the statute
requires, the choice of law problem is solved.
ii. But not always—the Federal Courts have encountered a few cases in which
the federal interests overcame state practices
2. Burlington North R. v. Woods
i. Practice at Issue—Is Δ who stays damage judgment but loses appeal liable for
10 percent penalty?
ii. State Practice—Yes: AL statute
iii. Federal Practice—FRAP 38 (discretionary award of extra costs for frivolous
iv. Holding—Federal Practice: NO PENALTY
v. Explanation—The Rule’s discretionary mode of operation unmistakably
conflicts with the mandatory provisions of Alabama’s affirmance penalty statute
3. Stewart Org. v. Ricoh
i. Practice at Issue—Is forum selection clause enforceable?
ii. State Practice—No: AL case law
iii. Federal Practice—28 U.S.C. §1404
iv. Holding—Federal Practice: ignore state case law, give substantial weight to
v. Explanation—Section 1404 is intended to place discretion in the district court
to adjudicate motions for transfer according to an individualized, case-by-case
consideration of convenience and fairness and trumps state’s blanket rule
4. Gasperini v. Center for Humanities, Inc
i. Practice at Issue—Must federal circuit court decide if damages exceed
ii. State Practice—Yes: NY Statute requiring such review by state appellate
iii. Federal Practice—Reexamination clause of 7th
iv. Holding—Modify federal practice—by allowing district courts to examine
verdicts for effectiveness
v. Explanation—Unlike Byrd, where “the court faced a one-or-the-other choice:
trial by judge as in state court, or trial by jury according to the federal practice,
here the principal state and federal interests can be accommodated” by district
5. Semtek Intl. Inc. v. Lockheed Martin Corp.—decides that a state practice overcomes
both a Rule and what Byrd called “affirmative countervailing considerations” of the
federal judicial system.
i. FACTS—Plaintiff filed a complaint in CA state court, alleging breach of K and
other business torts. Defendant removed to fed district court in CA on diversity,
and successfully moved to dismiss plaintiff’s claims as barred by CA’s 2 year SOL.
The federal rule is that SOL dismissals operate on the merits with prejudice, but
CA state practice says that a SOL dismissal is not with prejudice. This matters
because plaintiff filed suit again in MD, alleging the same COA, under a longer
SOL. MD state court looks to federal law (FRCP 41(b)).
a. Plaintiff says that the case is controlled by Dupasseur v. Rochereau –
which held that the res judicata effect of federal diversity jurisdiction is
such as would belong to the judgments of the state courts and may not
be accorded any higher effect. So, under Dupasseur, judgments in CA
fed courts would not be preclusive because CA state court practice
states that SOL dismissals are without prejudice.
1. Court decides not to apply this rule because it was based off
of law created before the FRCP (predates REA)
b. Other rule: Involuntary Dismissal rule (41(b))
ii. ISSUE—Is the claim preclusion an Erie Problem?
a. Since the case is now in Maryland State Court, this is not a traditional
Erie problem (not in federal court sitting in diversity)
b. Question is—WHAT LAW SHOULD A STATE COURT APPLY?
c. Why is this in the Erie line of cases?
1. Example of when a state court would have to respect a
Federal law—Federal Civil Procedure 41b dismissal with
iii. CONFLICT—FRCP 41 and 3 year SOL in Maryland
a. FRCP 41b—a dismissal under this subsection operates as an
adjudication on the merits
1. This leads to claim preclusion—same parties, same claim or
claims that were available at the time, fully litigated, decision on
b. Court rejects this FRCP 41 argument
1. Court says proper law for Maryland Courts to apply is CA
state laws of claim preclusion (the law of the state where the
federal court was sitting in diversity) to see what the effect of
the first judgment is
i. Court doesn’t say whether claim would be precluded,
just advises to look at the CA law to determine this.
ii. Why do we look to CA law?
a. Issue of SOL is outcome determinative (look
to state law)
b. The language of FRCP 41 says it wouldn’t
c. Erie purposes: apply substantive state law to
avoid forum shopping and make sure there is an
equitable administration of justice.
iv. RULE: When a federal court decides a case in diversity, a subsequent state
court should adopt the rule of the original state in which the district court sits.
a. EXCEPTION: Don’t follow state rule if it is incompatible with federal
b. Example: if state law does not preclude subsequent claim after
dismissal for discovery abuse, fed court should not follow state rule
because fed courts need to protect the integrity of their judicial process.
a. Interpreting FRCP 41 to have a claim preclusive effect would conflict
with the Rules Enabling Act because it would remove parties’ state
substantive right to refile the suit.
b. HW: why is this not an Erie case?
1. It’s not a strict application of the Erie doctrine because this
court isn’t sitting strictly in diversity
c. HW: not critical to our understanding of Erie
6. Shady Grove v. Allstate
i. Lady hurt in car wreck, assigned rights to insurance to her doctor
ii. Allstate paid the claim late but there was unpaid interest
iii. Allstate then sued to get the unpaid interest and then it became a class
action b/c Allstate had refused to pay those fees
iv. Class action dismissed under NY law
v. How do we know this is an Erie case?
a. Diversity with conflict of federal and state law
b. Fed and State statutes seems to address two different issues but
there is a conflict because there is language in the NY statute that’s not
in the Fed. – limitation on ability to file class action
c. NY: class action, unless- non statutory penalty.
vi. II A—Majority
a. Steps in a circumstance with conflicting laws
b. Does the Federal rule answer the question? (rule 23)
c. Does the rule exceed Congress’ rulemaking authority (not a rule or
1. If no- don’t go through Erie
a. Dichotomy of substances vs. procedure
b. Procedure regulates judicial process by enforcing rights and duties
viii. Is rule 23 substantive or procedural?
a. Procedural: all litigants have a right to sue ∆, it’s just the manner in
which they are suing (class action) Not the substance of the suit;
substance is an expanding of rights- not here (majority)
b. Substantive: (dissent) changing it from a $500 case to a $5 million
dollar case—huge shift in the rights.
ix. Erie Issues- compared to Symtec
a. Federalism concerns of Shady Grove
1. States could override Congress’ authority
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