The Erie Doctrine and Choice of Law

The Birth of the Erie Doctrine

Before 1938, Swift v. Tyson let federal courts in diversity apply their own 'general federal common law' on matters not governed by state statute. This produced forum shopping and unequal outcomes between state and federal courthouses across the street from each other.

Erie Railroad Co. v. Tompkins (1938) overruled Swift and held: 'There is no general federal common law.' A federal court sitting in diversity must apply:

• Federal law to procedural questions (how the litigation is conducted), and
• The substantive law of the state in which it sits (the rights and duties being adjudicated).

The constitutional underpinning is that federal courts have no power to create substantive law in areas reserved to the states (the Tenth Amendment / Rules of Decision Act). The hard cases are those where the federal/state line between 'substance' and 'procedure' is blurry.

Choice of law in diversity

When the case has multistate elements, the federal court does not independently choose which state's law applies. Under Klaxon Co. v. Stentor Electric, it applies the choice-of-law rules of the forum state, then applies the substantive law those rules select. (California uses a governmental-interest analysis, not the older lex loci rule.)

When a Federal Rule Is On Point: Hanna v. Plumer

The analysis branches depending on whether a valid federal directive (a Federal Rule of Civil Procedure or federal statute) is directly on point:

Branch 1 — A Federal Rule is on point (Hanna track)

In Hanna v. Plumer (1965), the Court held that when a Federal Rule of Civil Procedure directly conflicts with state law, the Federal Rule controls if it is:

1. Valid under the Rules Enabling Act (28 U.S.C. 2072) — i.e., it is 'arguably procedural' and does not 'abridge, enlarge, or modify any substantive right,' AND
2. Constitutional (within Congress's power to regulate federal court procedure).

Practically, every duly enacted FRCP has survived this test. In Hanna itself, Rule 4 (manner of serving process — leaving copies at the dwelling) controlled over a Massachusetts rule requiring in-hand service on an executor.

Branch 2 — No Federal Rule on point (Erie/York/Byrd track)

If there is no federal rule directly on point, the court asks whether applying federal practice instead of the state rule would be outcome-determinative.

• Guaranty Trust v. York: a state rule is substantive if ignoring it would significantly affect the outcome of the litigation (there, a state statute of limitations barred a diversity equity claim).
• The twin aims of Erie (Hanna refinement): apply state law where doing otherwise would (a) encourage forum shopping between state and federal court, or (b) lead to the inequitable administration of the laws.
• Byrd v. Blue Ridge: even an outcome-affecting state rule may yield to a strong countervailing federal interest (there, the Seventh Amendment allocation of fact-finding to the jury).

Classifying Issues: Substantive vs. Procedural

Use this checklist on the bar exam. State law (substantive) almost always governs the first group; federal law (procedural) governs the second.

Worked hypothetical

A diversity plaintiff files in federal court in California. State law gives a two-year limitations period and requires a plaintiff to prove fraud by clear and convincing evidence. The federal court will apply both the two-year limit and the clear-and-convincing standard — both are substantive under York and would be outcome-determinative and invite forum shopping if ignored. But the federal court will apply Rule 8(a) plausibility pleading and Rule 4 service rules, even if California's pleading or service rules differ, because those are procedural.

Essay tip: State the branch first — 'Is there a Federal Rule directly on point?' If yes, run Hanna/Rules Enabling Act. If no, run outcome-determinative + twin aims (+ Byrd balancing). Identifying the correct track earns the points.

Common Erie traps and the federal-common-law residue

Trap one: Students apply the outcome-determinative test even when a valid Federal Rule is on point. Don't. When a duly enacted FRCP directly conflicts with state law, Hanna controls and the Federal Rule wins — the York test is never reached. Trap two: Erie applies only to diversity (and supplemental) jurisdiction;

in federal-question cases the court applies federal substantive law, so there is no Erie problem. Trap three: despite Erie's 'no general federal common law' pronouncement, specialized federal common law still exists in discrete enclaves —

admiralty, interstate disputes, the rights and obligations of the United States, and matters governed by uniquely federal interests. Trap four: a state's 'door-closing' or tolling statute that conditions the very existence of the state-created right is substantive and binds the diversity court, but the manner of commencing the action (Rule 3 vs. a state filing rule) can turn on whether a Federal Rule is on point.

Spotting which track you are on — and naming Erie, York, Byrd, and Hanna in sequence — is what graders reward.