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Erie Problem- when a federal court sits in diversity jurisdiction, what law does it apply?

Erie Railroad v. Tompkins 304 U.S. 64 (1938) pg. 225


Facts:
• P was walking near railroad tracks when open refrigerator door on car struck him
○ P filed suit in federal court, S.D. of N.Y.
• D argued for application of Pennsylvania law which stated that railroad was liable only for
wanton negligence
○ Given the facts (P was trespasser), railroad would not have been liable under Penn.
law
• Trial court ignored Penn law, instead instructed jury to follow ordinary law of liability for
regular negligence
○ Jury found for P ($30,000), judgment affirmed by 2nd Circuit
Issue:
• Should Swift v. Tyson be overturned?
○ Swift held that federal courts exercising diversity jurisdiction need not apply the
unwritten law of the State
 Fed. courts were allowed to exercises independent judgment as to what the
common law of the Sate was or should be
Reasoning:
• Swift decision was wrong, federal courts have to follow state law (common and statutory)
• Why?
○ First, purpose of Rules of Decision Act was to make certain that federal courts
exercising diversity jurisdiction would apply their rules of decision the law of the
State
○ Second, the application of Swift has been negative
 Injustice and confusion
 Allows out of staters to void protections of a state by filing in federal court
○ Third, there is no general federal common law
 Constitution does not grant the federal judiciary power to create a federal
law
• All law must be State law
• Discusses evils of forum shopping » undermines justice

In diversity cases, a federal court must apply the law that would be applied by the courts of the
state in which they sit. By “the law”, we mean court decisions as well as statutes.

Therefore, on these facts, the New York federal district court should have applied New York’s
choice of law rules, which would, in turn, cause the court to apply Pennsylvania’s tort law. There
aren’t Pennsylvania statutes that would apply, but there were cases that applied and should have
been used by the federal court.

This isn’t the problem; the problem is all the stuff Brandeis says in the opinion.

US Code Article 28 § 1652:

The laws of the several states, except where the Constitution or treaties of the United States or
Acts of Congress otherwise require or provide, shall be regarded as rules of decision in civil
actions in the courts of the United States, in cases where they apply.

Look for statutes, then for State Supreme Court cases. But it’s probably not usually going to be
that easy. If there isn’t a definite ruling from the State Supreme Court, the federal court must
make their Erie “guess”: they must take a stab at predicting what the State Supreme Court
would do. There are two ways to do this:

1. Look at intermediate appellate or state district courts.


2. Ask the State Supreme Court directly by “certifying a question” of state law. Most state
courts can accept certified questions. (This is rare, because it is discretionary.)
Guaranty Trust Co. v. York 326 U.S. 99 (1945) pg. 233
• P sued bond trustee in a federal diversity action in NY
○ D argued that statute of limitations barred the complaint
○ P argued that under federal equity, statute of limitations did not apply
• Court held that federal court had to follow NY statute of limitations
○ Question was whether, when no recover could be had in State court, could a federal
court allow the suit based on diversity jurisdiction?
 Court holds no, federal court has to implement NY state law

Byrd v. Blue Ridge Rural Electric Cooperative 356 U.S. 525 (1958) pg. 237
• Witness for D gave some inconsistent testimony, case went back to trial judge to
determine
○ According to SC state law, question went to judge, not the jury
• Should a federal court follow the state precedent as established in a SC supreme court
case or follow the federal rule of referring factual issues to the jury?
○ Court holds that in this instance, fed. court should ignore state procedure
• Traditionally, court says that fed. courts should defer to state procedure if it would be
outcome determinative
○ If this were followed in this case, immunity would be decided by judge
• However, there are certain larger concerns that could pre-empt this
○ One of them being the federal insistence (per 7th amendment) on juries as fact
finders
Notes from Someone Else:
Cause of action: The following is a cause of action for negligence, which is being debated in the
Supreme Court as to whether the case should be tried in State or Federal court.
Procedural History: Case brought in District Court for Western District of SC, based on diversity
of citizenship (PL from NC; DF is a SC corporation). Appealed to Court of Appeals, where court
did not remand the case for a new trial on the question of whether the DF was PL's statutory
employer. Supreme Court reversed and remanded for a jury trial in Federal District Court.
Facts: PL injured as statutory employer of DF while in the process of putting up power lines
Issue(s): The inquiry here is whether the federal policy favoring jury decisions of disputed fact
questions should yield to the state rule in the interest of furthering the objective that the
litigation should not come out one way in the federal court and another way in the state court?
Court's Rationale/Reasoning: First off the Court, in trying to see if the state rule does bar a
jury trial, interprets the statute. Their findings conclude the statute is merely a form of judicial
review in regards to questions of affirmative defenses and not a bar on jury trials all together.
Second, the Court, after explaining the rule in Erie, decides whether the trial system would differ
on the federal level as opposed to the state level. They go on to say if the outcome were the
only consideration, a strong case might appear for saying that the federal court should follow
state practice. But the trial system is the argument here.
The seventh Amendment is at work here, and in the event a particular set of circumstances leads
to a federal trial, the right to a jury is not to be denied. Third, the Court finds there would be no
difference in either court if a trial by jury were held. There is also no rule barring federal jury
trials based on state law, and again the seventh Amendment is the guiding force in establishing
a right to trial by jury.
Rule: In the absence of other considerations -- to states rules even of form and mode where the
state rules may bear substantially on the question whether the litigation would come out one
way in the federal court and another way in the state court if the if the federal court failed to
apply a particular local rule.
Holding: No. As long as the state and federal results cannot be either ascertained to favor one
party over another, a federal trial may proceed with the cause of action grounded in state rules.
There is no law to the contrary.
Hanna v. Plumer 380 U.S. 460 (1965) pg. 240 Reframes Erie, statutory not
constitutional

Facts: Hanna, from Ohio, sued the estate of Osgood, from Massachusetts, over a car accident in
South Carolina.

Procedural Posture: Hanna served process by leaving documents with the wife of the executor,
which complied with the FRCP, but not Massachusetts law. The defendant moved to dismiss on
this basis, citing Erie and subsequent cases, and the trial court granted the motion. The plaintiff
appealed, saying that the FRCP rules in diversity actions. The Circuit Court ruled that the state
statute should govern because it is substantive rather than merely procedural. The plaintiff
appealed to the Supreme Court.

Issue: In a civil action brought in federal court based on diversity jurisdiction, shall service of
process be based on the FRCP or on state law?

Rule: NEW(ish) RULE! Basically, Erie does not kill the FRCP.

Analysis: The majority writes that the Federal Rules of Civil Procedure as adopted by the Supreme
Court do not violate the Rules Enabling Act, nor are they unconstitutional.

The Court is trying to remedy a divergence between the Erie line of cases and those construing
the Rules Enabling Act.

The Court finds that if there was no conflict with state law, the Federal Rules of Civil Procedure
would control, but Erie presents a problem. The defendant argued that the outcome-
determinative test must be used, and under that test the defendant would win immediately.
However, the Court says that the outcome-determinative test is not absolute. Erie is meant to
remedy problems arising from big differences between state and federal law, not tiny,
insubstantial ones. The Court suggests that the difference between Massachusetts law and the
Federal Rules of Civil Procedure in this case is not that big. To figure out which law controls, the
Court says that the policy reasons underlying Erie must be considered.

Erie, according to this Court, has two goals:

1. Stop forum-shopping, and


2. Avoid unfair differences in administration of justice between state and federal courts.

The Court says that the competing rules, though outcome-determinative, have little or no
relevance to the choice of a forum. You wouldn’t decide to file in state versus federal court
based solely on the choice between these two laws. The difference between the two laws also
doesn’t raise any equal protection problems.

The Court further argues that Erie has never been used to kill a Federal Rule. The Federal Rules
of Civil Procedure have not been held to be invalid, only not as broad as alleged and thus
trumped in a particular case by a state rule.

The Court says that the tests of Erie and of the Rules Enabling Act are not identical. The nature
of the Rules Enabling Act is that it kills rules that go too far given the constitutional and
Congressional mandate. Nobody is allowed to write unconstitutional rules. But Erie dealt with a
difference in law that was clearly substantive, and didn’t kill the Federal Rules of Civil Procedure.

The Court claims that Erie wasn’t meant to curtail the power of Congress to say how things
should run at a procedural level in the federal courts.
Justice Harlan, in a concurring opinion, proposes an alternative rule: the state rule should prevail
if “the choice of rule would substantially affect those primary decisions respecting human
conduct which our constitutional system leaves to state regulation.” I don’t know what the heck
that means.

Harlan objects to the rule made by the majority in that he feels that anything that can
reasonably be called “procedural” and put into the Federal Rules of Civil Procedure will be
allowed to control, no matter how much it screws up rights granted by the states. Harlan finds
that this makes the Federal Rules of Civil Procedure too absolute.

Harlan says that in the present case, the Federal Rules of Civil Procedure should rule because the
effect of using them instead of the Massachusetts rule “would not be substantial”. Harlan
basically says: no harm, no foul, so we’ll use the Federal Rule.

Conclusion: The decision of the Circuit Court of Appeals was reversed. The FRCP live on!

Notes and Problems

1. The federal court could disregard the state rule because the Constitution grants power over
the federal courts to the federal government and Congress grants control of the rules to the
courts as well.
2. I was wondering whether an alternative move here would have been to find the Rules
Enabling Act unconstitutional. What would happen if the Rules Enabling Act were repealed by
Congress?
3. We only apply Hanna when a federal court would behave differently from a state court in
the absence of a competing state rule.
a. If the federal practice is dictated by the Federal Rules of Civil Procedure or another federal
statute, that practice rules as long as the rule or statute is constitutional. It appears that there
was precedent for finding the REA constitutional. Therefore, when you’re considering whether a
federal court should apply a rule, you must ask two things: (1) Is the rule okay under the REA in
that it is a rule of “practice and procedure”? (2) Is the rule constitutional in and of itself? No
Rule has ever been held unconstitutional or in violation of the REA.
b. The difference between federal and state practice is that the state practice would stop the
suit in its tracks, while the federal practice would let it continue. The federal practice is followed
because it is procedural and thus in the realm of the REA, and it is also constitutional on its face.

Semtek Intl. Inc. v. Lockheed Martin Corp. 531 U.S. 497 (2001)
• P brought claim in CA state court, D removed to federal for diversity
○ Fed ct. dismissed because of statute of limitations
○ P refilled in Md state ct who dismissed because of res judicata
 Doesn’t matter if CA courts would treat claim as precluded or not
• Court holds that Md. court erred in dismissing claim, they should apply their own statute of
limitations
• A state court need not give a fed ct’s decision based on another state’s laws a broader
scope than that state would give it
○ Fed ct. gave dismissing based on statute of limitations preclusive effect, but state of
CA would not have
○ Because of this, Md. state court does not have to give undue weight to fed court
 Need to apply their own
• EXCEPTION: when there is a strong federal interest, states have to follow fed. court’s
decision