The Erie doctrine is a binding principle where federal courts exercising diversity jurisdiction apply federal procedural law of the Federal Rules of Civil Procedure, but must also apply state substantive law.
The Erie doctrine derives from the landmark 1938 U.S. Supreme Court case, Erie Railroad Co. v. Tompkins (1938). The Rules Decision Act of 1789, codified as 28 U.S.C. § 1652, laid the foundation for how federal courts should operate when exercising diversity jurisdiction, and provided that the “laws of the several states” apply in federal court. Prior to Erie, federal courts followed Swift v. Tyson (1842), which interpreted the “laws of the several states” to include only state statutes and local custom, and not the state common law. This meant that federal courts were free to ignore state substantive law established by common law through that state’s judiciary when exercising diversity jurisdiction and could apply what they saw as the true general common law. In Swift, for example, the Court disregarded New York commercial law established by the state judicial precedent, and instead saw its role as “express[ing] our own opinion of the true result of the commercial law upon the question.” The proper law to apply, the Court believed, “may be truly declared in the languages of Cicero, adopted by Lord Mansfield in Luke v. Lyde, to be in a great measure not the law of a single country only, but of the commercial world.” This reasoning reflects the view that there was one true and accurate body of laws that can be ascertained regardless of a polity’s laws, i.e. natural law.
Erie Railroad Co. v. Tompkins
The U.S. Supreme Court in Erie Railroad Co. v. Tompkins, is an opinion by Justice Brandeis, departed from Swift and held that the language in the Rules Decision Act stating that federal courts when exercising diversity jurisdiction shall apply the “laws of the several states” includes state common law. Specifically, in Erie, Tompkins lost his arm while walking on a footpath alongside a railroad track when a train car’s door came loose and injured him. Under Pennsylvania state common law, Tompkins was a trespasser on the railroad’s property and could not recover, but under the general common law he was not a trespasser and could recover. The Court refused to apply the general common law, stating “there is no federal general common law,” and instead applied the law of the state where the injury occurred to deny Tompkins’ recovery.
In denying that federal courts can apply federal common law, Justice Brandeis largely focused on the policy impact of allowing federal courts to apply federal common law in diversity cases. For one, it encouraged forum shopping, because, since federal and state courts applied different laws, diverse plaintiffs could select which law was more favorable to their claim. This also led to unequal administration of the law, because diverse citizens could remove state actions to federal court and potentially take advantage of more favorable laws, thus disadvantaging litigants suing in their home state. Furthermore, Justice Brandeis found constitutional issues with federal courts applying federal common law. First, it offended federalism, as the judiciary should not have the power to essentially create substantive law since Congress cannot even create substantive law in the circumstances where the judiciary applied general common law. It also offended principles of separation of power, as Congress is the branch tasked with making law, and the judiciary usurped lawmaking power by applying federal common law as they saw fit. In general, Brandeis’s opinion signals a shift from federal courts shifting from applying natural law to adopting a perspective of legal realism.
While the principle that federal courts must apply the substantive law of the state where they are located is relatively straightforward, the delineation of substantive law and procedural law is hardly so simple and presented post-Erie courts with many challenges. An early case, Sibbach v. Wilson, ruled that a court ordering a medical examination under the Federal Rules of Civil Procedure was truly procedural, finding that it fell under the “judicial process for enforcing rights and duties recognized by substantive law, and for justly administering remedy and redress for disregard or infraction of them.” Later cases focused on whether the law has the potential to determine the outcome of the litigation. For example, in Guaranty Trust Co. v. York, the U.S. Supreme Court was concerned with whether ignoring a state statute of limitations would significantly alter the outcome of litigation and held that statutes of limitations are substantive law. Specifically, the Court stated that “[t]he outcome of the litigation in the federal court should be substantially the same. . . as it would be if tried in a State court.” Subsequent courts have narrowed this analysis, focusing on whether applying federal procedural law to an issue would determine the outcome in light of its potential impact on forum shopping and inequitable administration of the laws—i.e. the aims of the Erie Doctrine. In Hanna v. Plumer, the U.S. Supreme Court ruled that the federal rules of service trumped the state’s requirement of in-hand service for the type of claim because the federal rule in question was arguably procedural and the federal service rule would not have affected the forum choice ex ante.
[Last updated in May of 2021 by the Wex Definitions Team]