Civil Procedure

The Erie Doctrine

Nature of the Problem

Once you have determined which court or courts have the proper jurisdiction to decide a case, the next question one is faced with is what law should the court apply?  State courts apply state law.  In federal question cases both federal and state courts apply federal law.  But in diversity cases) a case that could have been brought in a state court but is being brought in federal court due solely to the citizenship of the parties, what law will a federal court apply?  Federal or state?  Prior to 1938,  Swift v. Tyson , 41 U.S. (16 Pet.) 1, 10 L.Ed. 865 (1842) held that federal courts were free to apply the law so as to reach a result they thought was justice regardless of state common law.   However that changed with the decision in Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

In Erie, the plaintiff was walking alongside railroad tracks when his right arm was severed by an object protruding from defendant's train.  The accident  occurred in Pennsylvania.  Plaintiff (now presumably known as "lefty") filed a lawsuit in federal court in New York where it was felt the laws were more favorable to plaintiffs.  The issue was what level of duty is owed to a trespasser.  If Pennsylvania law applied then only "wanton negligence" created liability.  If "federal common law" applied the plaintiff could recover if the railroad was guilty of "ordinary" negligence.  The issue that confronted the Supreme Court was the meaning of the phrase "the laws of the several states."    If it meant case law (judicial decisions) as well as statutes, then Pennsylvania law would apply and plaintiff would lose.  If not, then "federal common law" will apply and plaintiff could presumably recover.

Erie held that federal courts in diversity actions apply the substantive law of the state in which they sit.  "Law" includes common law as well as statutory law.  In diversity actions federal courts must treat the decisions of the state courts in the jurisdiction in which they sit as a source of law.  I.e., a federal court in a diversity case must apply the same law that the state court would apply.  There is no longer a "federal common law," a federal court must apply the common law of the state.  The rule of Erie serves the purposes of discouraging forum shopping and avoiding the unfair administration of laws (i.e., avoiding the potential for state and federal courts sitting in the same state reaching different outcomes based on the same facts.)

Evolution of the Erie Doctrine

The Erie doctrine has evolved over the years.  Here are the turning points in its evolution.

Guaranty Trust Co. v. York, 326 U.S. 99, 65 S.Ct 1464, 89 L.Ed. 2079 (1945) marks the emergence of the "outcome determinative test," which was an attempt to prevent federal courts from reaching a result at variance with the result that would obtain in a state court in a comparable case.  (Friedenthal § 4.3)  A state law which is normally regarded as "procedural" should be applied by a federal court in a diversity case if it would, or could, vitally affect the outcome of the case.  Guaranty Trust redefined the Erie doctrine.  The intent of Erie was to insure that where a federal court is exercising jurisdiction solely because of diversity, the outcome of the litigation in federal court should be substantially the same as it would be if tried in State court.  (Wright, § 55)  In Guaranty Trust the issue was whether a federal court in a diversity case must apply the state statute of limitations, which would have barred the suit in state court.  Goal is to avoid reaching a different result in federal court than would otherwise be had in state court.  If applying federal law would mean a different outcome, state law controls therefore state statute of limitations applies.

In Byrd v. Blue Ridge , 356 U.S. 525, 78 S.Ct 893, 2 L.Ed. 2d 953 (1958) the question was whether the issue of employee or independent contractor is to be decided by the judge or the jury.  The court held that the mere possibility that a federal practice may alter the outcome of a diversity case is not conclusive in deciding whether to apply federal or state law.  Court must weigh (determine whether either one is of some importance) the policies behind the federal and state rules then determine whether there is a substantial possibility that different results would be obtained because federal practice is used.  (Friedenthal § 4.3)  In Byrd the state practice was found to reflect a weak state policy, not bound up with the underlying statute, of preferring a judge's determination of the employment issue.  When balanced against the strong federal policy embodied in the 7th Amendment guarantee of a jury trial, and the fact that there was no substantial possibility that different results would be obtained by utilizing a jury, the federal practice was preferred.  (Friedenthal § 4.3)

In Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed. 2d 8 (1965), the issue was whether federal rules on service of process should yield to state rules. Hanna announces a two-part test.  First, the court inquires whether a federal rule actually governs the practice under consideration.  If the answer is yes, then the court must determine whether a conflict between the federal rule and state law exists, or whether the federal rule is "narrower" in its coverage (i.e., does not cover the issue in question) than the state statute.  If there is a direct conflict between state practice and a federal rule, then the court must determine whether the federal rule is a valid exercise of the rule making power granted to the Supreme Court by Congress.  (Friedenthal § 4.4) (No federal rule of civil procedure has ever been found to be an invalid exercise of the rule making power.)


Hanna Two-Part Test Simplified 

(1) If there is a valid Federal Rule on the subject, the rule is to be applied. 

(2) In the absence of a federal rule on the point the court is to consider the problem in light of the twin aims of the Erie rule,  (a) discourage forum shopping and (b) avoid inequitable administration of laws.  (Different results between state and federal courts.)  (Wright § 59)

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© 2015 by and Craig A. Smith

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