CRS Annotated Constitution
|Article III -- Table of Contents||Prev | Next|
The Law Applied in Diversity Cases.—By virtue of Sec. 34 of the Judiciary Act of 1789,987 state law expressed in constitutional and statutory form was regularly applied in federal courts in diversity actions to govern the disposition of such cases. But in Swift v. Tyson,988 Justice Story for the Court ruled that state court decisions were not laws within the meaning of Sec. 34 and though entitled to respect were not binding on federal judges, except with regard to matters of a “local nature,” such as statutes and interpretations thereof pertaining to real estate and other immovables, in contrast to questions of general commercial law as to which the answers were dependent not on “the decisions of the local tribunals, but in the general principles and doctrines of commercial jurisprudence.”989 The course of decision over the period of almost one hundred years was toward an expansion of the areas in which federal judges were free to construct a federal common law and a concomitant contraction of the definition of “local” laws.990 Although[p.768]dissatisfaction with Swift v. Tyson was almost always present, within and without the Court,991 it was the Court’s decision in Black & White Taxicab & Transfer Co. v. Brown & Yellow Taxicab & Transfer Co.,992 which brought disagreement to the strongest point and perhaps precipitated the overruling of Swift v. Tyson in Erie Railroad Co. v. Tompkins.993
“It is impossible to overstate the importance of the Erie decision. It announces no technical doctrine of procedure or jursidiction, but goes to the heart of the relations between the federal government and the states, and returns to the states a power that had for nearly a century been exercised by the federal government.”994 Erie was remarkable in a number of ways aside from the doctrine it announced. It reversed a 96–year–old precedent, which counsel had specifically not questioned, it reached a constitutional[p.769]decision when a statutory interpretation was available though perhaps less desirable, and it marked the only time in United States constitutional history when the Court has held that it had undertaken an unconstitutional action.995
Tompkins was injured by defendant’s train while he was walking along the tracks. He was a citizen of Pennsylvania, and the railroad was incorporated in New York. Had he sued in a Pennsylvania court, state decisional law was to the effect that inasmuch as he was a trespasser, the defendant owned him only a duty not to injure him through wanton or willful misconduct;996 the general federal law treated him as a licensee who could recover for negligence. Tompkins sued and recovered in federal court in New York and the railroad presented the issue to the Supreme Court as one covered by “local” law within the meaning of Swift v. Tyson. Justice Brandeis for himself and four other Justices, however, choose to overrule the early case.
First, it was argued that Tyson had failed to bring uniformity of decision about and that its application discriminated against citizens of a State by noncitizens. Justice Brandeis cited recent researches997 indicating that Sec. 34 of the 1789 Act included court decisions in the phrase “laws of the several States.” “If only a question of statutory construction were involved we should not be prepared to abandon a doctrine so widely applied throughout nearly a century. But the unconstitutionality of the course pursued has now been made clear, and compels us to do so.”998 For a number of reasons, it would not have been wise to have overruled Tyson on the basis of arguable new discoveries.999 Second, then, the decision[p.770]turned on the lack of power vested in Congress to have prescribed rules for federal courts in state cases. “There is no federal general common law. Congress has no power to declare substantive rules of common law applicable in a State whether they be local in their nature or ‘general,’ be they commercial law or a part of the law of torts. No clause in the Constitution purports to confer such a power upon the federal courts.”1000 But having said this, Justice Brandeis made it clear that the unconstitutional assumption of power had been made not by Congress but by the Court itself. “[W]e do not hold unconstitutional Sec. 34 of the Federal Judiciary Act of 1789 or any other Act of Congress. We merely declare that in applying the doctrine this Court and the lower courts have invaded rights which in our opinion are reserved by the Constitution to the several States.”1001
Third, the rule of Erie replacing Tyson is that “[e]xcept in matters governed by the Federal Constitution or by Acts of Congress, the law to be applied in any case is the law of the State. Whether the law of the State shall be declared by its Legislature in a statute or by its highest court in a decision is not a matter of federal concern.”1002
Since 1938, the effect of Erie has first increased and then diminished, as the nature of the problems presented changed. Thus, the Court at first indicated that not only the decision of the highest court of a State were binding on a federal court in diversity but as well intermediate appellate courts1003 and courts of first in[p.771]stance,1004 even where the decisions bound no other state judge except as they were persuasive on their merits. It has now retreated from this position to the extent that federal judges are to give careful consideration to lower state court decisions and to old, perhaps outmoded decisions, but they must find for themselves the state law where the State’s highest court has not spoken definitively and within a period which would raise no questions about the continued viability of the decision.1005 In the event of a state supreme court reversal of an earlier decision, the federal courts are, of course, bound by the later decision, and a judgment of a federal district court, correct when rendered, must be reversed on appeal if the State’s highest court in the meantime has changed the applicable law.1006 In diversity cases which present conflicts of law problems, the Court has reiterated that the district court is to apply the law of the State in which it sits, so that in a case in State A in which the law of State B is applicable, perhaps because a contract was made there or a tort was committed there, the federal court is to apply State A’s conception of State B’s law.1007
The greatest difficulty in applying the Erie doctrine has been in cases in which issues of procedure were important.1008 The process was initiated in 1945 when the Court held that a state statute of limitations, which would have barred suit in state court, would bar it in federal court, although as a matter of federal law the case still could have been brought in federal court.1009 The Court regarded the substance–procedure distinction as immaterial. “[S]ince a federal court adjudicating a state–created right solely because of[p.772]the diversity of citizenship of the parties is for that purpose, in effect, only another court of the State, it cannot afford recovery if the right to recover is made unavailable by the State nor can it substantially affect the enforcement of the right as given by the State.”1010 The standard to be applied was compelled by the “intent” of the Erie decision, which “was to insure that, in all cases where a federal court is exercising jurisdication solely because of the diversity of citizenship of the parties, the outcome of the litigation in the federal court should be substantially the same, so far as legal rules determine the outcome of a litigation, as it would be if tried in a State court.”1011 The Court’s application of this standard created substantial doubt that the Federal Rules of Civil Procedure had any validity in diversity cases.1012
But in two later cases, the Court contracted the application of Erie in matters governed by the Federal Rules. Thus, in the earlier case, the Court said that “outcome” was no longer the sole determinant and countervailing considerations expressed in federal policy on the conduct of federal trials should be considered; a state rule making it a question for the judge rather than a jury of a particular defense in a tort action had to yield to a federal policy enunciated through the Seventh Amendment of favoring juries.1013 The latter ruling simplified the matter greatly. Erie is not to be the proper test when the question is the application of one of the Rules of Civil Procedure; if the rule is valid when measured against the Enabling Act and the Constitution, it is to be applied regardless of state law to the contrary.1014
Supplement: [P. 772, add to text following n.1013:]
Some confusion has been injected into consideration of which law to apply—state or federal—in the absence of a federal statute or a Federal Rule of Civil Procedure.31 In an action for damages, the federal courts were faced with the issue of the application either of a state statute, which gave the appellate division of the state courts the authority to determine if an award is excessive or inadequate if it deviates materially from what would be reasonable compensation, or of a federal judicially–created practice of review of awards as so exorbitant that it shocked the conscience of the court. The Court determined that the state statute was both substantive and procedural, which would result in substantial variations between state and federal damage awards depending on whether the state or the federal approach was applied; it then followed the mode of analysis exemplified by those cases emphasizing the importance of federal courts reaching the same outcome as would the state courts,32 rather than what had been the prevailing standard, in which the Court balanced state and federal interests to determine which law to apply.33 Emphasis upon either approach to considerations of applying state or federal law reflects a continuing difficulty of accommodating “the constitutional power of the states to regulate the relations among their citizens . . . [and] the constitutional power of the federal government to determine how its courts are to be operated.” 34 Additional decisions will be required to determine which approach, if either, prevails.
Although it seems clear that Erie applies in nondiversity cases in which the source of the right sued upon is state law,1015 it is equally clear that Erie is not applicable always in diversity cases whether the nature of the issue be substantive or procedural. Thus,[p.773]it may be that there is an overriding federal interest which compels national uniformity of rules, such as a case in which the issue is the appropriate rule for determining the liability of a bank which had guaranteed a forged federal check,1016 in which the issue is the appropriate rule for determining whether a tortfeasor is liable to the United States for hospitalization of a soldier and loss of his services,1017 and in which the issue is the appropriate rule for determining the validity of a defense raised by a federal officer sued for having libeled one in the course of his official duties.1018 In such cases, when the issue is found to be controlled by federal law, common or otherwise, the result is binding on state courts as well as on federal.1019 Despite, then, Justice Brandeis’ assurance that there is no “federal general common law,” there is a common law existing and developing in the federal courts, even in diversity cases, which will sometimes control decision.1020
Supplement: [P. 773, add to n.1016:]
But see O’Melveny & Myers v. FDIC, 512 U.S. 79 (1994) .
|Article III -- Table of Contents||Prev | Next|