Erie doctrine

Last updated June 15, 2024

The Erie doctrine is a fundamental legal doctrine of civil procedure in the United States which mandates that a federal court called upon to resolve a dispute not directly implicating a federal question (most commonly when sitting in diversity jurisdiction, but also when applying supplemental jurisdiction to claims factually related to a federal question or in an adversary proceeding in bankruptcy) must apply state substantive law.

Scope

There are two main objectives of the Erie decision: (1) to discourage forum shopping among litigants, and (2) to avoid inequitable administration of the laws. Broadly speaking, the second objective is sometimes referred to as "vertical uniformity" and is rooted in the idea that in a given state, the outcome of the litigation should not be grossly different just because a litigant filed a claim in a state court rather than a federal court or vice versa.

The Erie doctrine today applies regardless of how the federal court may hear a state claim. Whether the federal court encounters a state law issue in diversity jurisdiction, supplemental jurisdiction, or bankruptcy jurisdiction, the federal court must honor state common law when deciding state law issues.^[1]

In effect, when the U.S. Constitution does not control and Congress has not legislated (or cannot legislate) on a topic, then the laws of the states necessarily govern and state judge-made rules are equally binding on the federal courts as state statutes.

The federal court must determine if either 1) state law is clear as to the case in controversy, or 2) if not, then has the state's highest court ruled specifically on a similar case. If so, the state law or court ruling must be followed. But if not, then the federal court must determine how the state's highest court would potentially rule on a matter: for example, it may look to state appellate courts to see how they ruled, and if the state chose not to hear further appeals, the federal court could determine that the high court agreed with the appellate courts. The determination is called an "'Erie guess", though the term "guess" is a misnomer as the federal court must make a reasoned determination in its ruling.

Alternatively though, the court may elect to certify the question to the state's highest court for a ruling on state law in the matter. Some states, however, do not allow Federal District Courts to certify questions, only the Supreme Court or Federal Circuit Courts of Appeals.

Origin

The Erie case involved a fundamental question of federalism and the jurisdiction of federal courts in the United States. In 1789, the Congress passed a law still in effect today called the Rules of Decision Act (28 U.S.C. § 1652), which states that the laws of a state furnish the rules of decision for a federal court sitting in that state. Thus, a federal court in Texas, hearing a case based on diversity (as opposed to a federal question), has to follow the laws of the applicable state in resolving a case before it.

Swift v. Tyson

The Supreme Court's decision in Swift v. Tyson had defined the laws of the state as meaning only laws passed by legislatures of that state (though Justice Joseph Story writing for the court suggested that federal courts should pay special attention to how the "local tribunals" of a state would resolve a dispute). Thus, on issues of "general common law", a federal court was free to ignore decisions by a state's highest court.

Aftermath of Swift

The decision in Swift resulted in inconsistent judicial rulings in the same state on the same legal issue depending on whether a plaintiff brought a case in state or federal court. In one case, for example, Black and White Taxicab Co. v. Brown and Yellow Taxicab Co. 276 U.S. 518 (1928), the Brown and Yellow Cab Company, a Kentucky corporation, sought to create a business association with the Louisville and Nashville Railroad, where Brown and Yellow would have a monopoly on soliciting passengers of the railroad, effectively eliminating the competition, the Black and White Cab Co. Such an agreement was illegal under Kentucky common law, as interpreted by Kentucky's highest court. Brown and Yellow dissolved itself, reincorporated in Tennessee, and executed the agreement there, where such an agreement was legal, bringing suit against Black and White in a Kentucky federal court to prevent them from soliciting passengers. The federal court upheld the agreement, citing Swift, and arguing that under general federal common law, the agreement was valid. If Brown and Yellow had brought suit in a Kentucky state court, the agreement would not have been upheld.

Erie

The decision in Erie involved a railroad accident. The plaintiff, Tompkins, was walking alongside Erie's railroad tracks in Pennsylvania when a train passed. An open door struck him and knocked him under the train, severing his arm. In most states, Tompkins could sue for negligence of the railroad and recover monetary damages for his loss. In Pennsylvania, however, Tompkins was considered a trespasser. He was not to recover for an ordinary negligence claim in the state court of Pennsylvania, because under the law of that state, a claimant had to show "wanton" negligence on part of the Defendant to recover.

Thus, Tompkins brought his case in federal court to avoid the unfavorable state law. He subsequently won. However, on appeal the Supreme Court held, in an opinion drafted by Justice Brandeis, that such decisions and inconsistent rulings based on a general federal common law were unconstitutional, and that decisions by a state supreme court were "laws" that federal courts were bound to follow under the Rule of Decision Act. Brandeis noted that the Court felt that Swift allowed federal courts to make unconstitutional modifications of the substantive law of a state. He noted that it violated the right to equal protection under the law, although he did not mean it in the sense of the Fourteenth Amendment. The Court overturned Swift on its own initiative, since the parties in Erie did not ask the Court to do so.

Development

Several later cases have added to the vague Erie decision (Brandeis cited no provision of the Constitution that Swift violated, although theoretically it might have violated the Tenth Amendment's reservation of powers to the state). Speaking generally, there are two approaches in determining whether a federal court will apply a state law: (1) the Hanna & Rules Enabling Act approach, per 28 U.S.C. § 2072 when there is a Federal Rule of Civil Procedure and statute that conflicts with a state law; and (2) the Byrd-Erie approach when there is not a conflict between a state and federal practice.

Byrd-Erie

This approach suggests that unless there is a major countervailing federal policy that trumps the state practice, if ignoring the state law would lead to forum shopping by plaintiffs and unequal administration of the laws (like in Yellow Cab above), the court should apply the state law. In Byrd v. Blue Ridge Rural Electrical Cooperative, Inc. , the Court decided that the federal policy allocating responsibilities between judge and jury, as embodied in the 7th Amendment of the US Constitution, outweighed the state rule requiring a judge to decide whether an employer was immune from suit. The main goal of the Erie decision was to prevent "forum-shopping," a practice where plaintiffs choose a legal forum simply because of the probability of a more favorable ruling. The main problem with the decision is that sometimes there is simply no state law or practice on which a federal court may defer. Federal judges are left to guess how a state court would rule on a given legal question, and a state court is in no way bound by a federal decision interpreting their own state law.

Justice Frankfurter in Guaranty Trust Co. v. York ,^[2] summarizes the main point of Erie differently:

In essence, the intent of that decision was to ensure that, in all cases where a federal court is exercising jurisdiction 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....

This suggests that Erie's main goal was to achieve equal protection under the law. One way that equal protection is intentionally disregarded would be through "forum shopping," but the reduction of inequality was the main target of the doctrine.

Hanna

Under the approach in Hanna v. Plumer , the federal court of a state hearing a case based on diversity jurisdiction should apply state law in the event of conflict between state and federal law - or in the absence of relevant federal positive law - if the state law deals with substantive rights of state citizens. The Supreme Court has defined substantive rights as, "rights conferred by the law to be protected and enforced by the adjective law of judicial procedure." An example of a substantive right would be a state law on fraud, which may vary widely in composition depending on the jurisdiction. If the state law is merely procedural, or relating merely to the form and mode of judicial operations, then the federal court does not have to apply the conflicting state law. However, the substance-procedure distinction is a generality as the Court rejected any test based upon "litmus paper criterion." Thus, a choice between state and federal law must be made with reference to the underlying policy of the Erie decision.

The Court announced a modification of the "outcome-determinative" test in York, whereby the test must be applied in light of the twin aims of Erie, which are the discouragement of forum-shopping and avoidance of inequitable administration of the laws. Under this rule, state procedural law would not supplant federal procedural law if the differences in the outcome are nonsubstantial or trivial, fail to raise Equal Protection concerns, and are unlikely to influence the choice of forum.

Gasperini

A more recent Supreme Court case that addressed the Erie problem is Gasperini v. Center for Humanities , 518 U.S. 415 (1996). Gasperini is a post-Hanna decision addressing a conflict between state and federal law for review of jury verdicts. The plaintiff, a well-known artist and photographer from New York, sued a New York museum in federal court in New York, for damages arising from the loss of some photographs and slides he had loaned the museum. A jury found in his favor and awarded damages. The defendant appealed, and the U.S. Court of Appeals for the Second Circuit reduced the damages award on appeal. Gasperini appealed to the U.S. Supreme Court.

The New York state provision, a "tort reform" measure, allowed reviewing appellate courts to overturn a jury verdict if it "deviates materially from what would be reasonable compensation." Pursuant to this law, the Second Circuit applied the state's appellate standard of review. However, the Supreme Court stated that federal courts, bound by the reexamination clause of the Seventh Amendment, could overturn a jury's finding of fact only if it "shocked the conscience."

The Supreme Court could have resolved the case by reading the Seventh Amendment broadly, and treating it as controlling in federal court. However, instead, the Court opted for what can be described as a compromise,^{[ by whom? ]} holding that the federal court should apply the state's lower standard of review, but in a way that would not run afoul of the Seventh Amendment: instead of the federal appeals court reviewing the jury finding, the trial judge would assume the role.

Gasperini, and another recent Erie-area case, Semtek International Inc. v. Lockheed Martin Corp. , have shown Erie has gone in a newer and even more complicated direction than the previous controlling cases, and that instead of selecting either federal or state law for a case, the federal court may be required to somehow blend federal and state law, depending on the issue. This is quite frustrating for those who wish to have a black-letter rule that will point them to the answer. However, the possibility of blending in Erie does not open up an infinitude of possibilities. In both Gasperini and Semtek, the common thread is that the blending is done in a way that is calculated to advance the aims of Erie (and York): non-discrimination between litigants, and discouragement of forum shopping.^[3]

Related Research Articles

The Federal Rules of Civil Procedure govern civil procedure in United States district courts. They are the companion to the Federal Rules of Criminal Procedure. Rules promulgated by the United States Supreme Court pursuant to the Rules Enabling Act become part of the FRCP unless, within seven months, the United States Congress acts to veto them. The Court's modifications to the rules are usually based upon recommendations from the Judicial Conference of the United States, the federal judiciary's internal policy-making body.

An abstention doctrine is any of several doctrines that a United States court may apply to refuse to hear a case if hearing the case would potentially intrude upon the powers of another court. Such doctrines are usually invoked where lawsuits involving the same issues are brought in two different court systems at the same time.

In the law of the United States, diversity jurisdiction is a form of subject-matter jurisdiction that gives United States federal courts the power to hear lawsuits that do not involve a federal question. For a federal court to have diversity jurisdiction over a lawsuit, two conditions must be met. First, there must be "diversity of citizenship" between the parties, meaning the plaintiffs must be citizens of different U.S. states than the defendants. Second, the lawsuit's "amount in controversy" must be more than $75,000. If a lawsuit does not meet these two conditions, federal courts will normally lack the jurisdiction to hear it unless it involves a federal question, and the lawsuit would need to be heard in state court instead.

Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938), was a landmark U.S. Supreme Court decision in which the Court held that the United States does not have a general federal common law and that U.S. federal courts must apply state law, not federal law, to lawsuits between parties from different states that do not involve federal questions. In reaching this holding, the Court overturned almost a century of federal civil procedure case law, and established the foundation of the modern law of diversity jurisdiction.

Federal common law is a term of United States law used to describe common law that is developed by the federal courts, instead of by the courts of the various states. Ever since Louis Brandeis, writing for the Supreme Court of the United States in Erie Railroad v. Tompkins (1938), overturned Joseph Story's decision in Swift v. Tyson, federal courts exercising diversity jurisdiction have applied state law as the substantive laws, with few exceptions. Nevertheless, there are several areas where federal common law continues to govern.

Swift v. Tyson, 41 U.S. 1 (1842), was a case brought in diversity in the Circuit Court for the Southern District of New York on a bill of exchange accepted in New York in which the Supreme Court of the United States determined that United States federal courts that heard cases brought under their diversity jurisdiction under the Judiciary Act of 1789 must apply statutory state laws when the state legislatures in question had spoken on the issue, but did not have to apply the state's common law if the state legislatures had not spoken on the issue.

Sampson v. Channell, 110 F.2d 754, was a United States Court of Appeals decision interpreting the application of the Erie doctrine where diversity jurisdiction is invoked in a choice of law situation, where a court in one state may be called upon to apply the laws of another state.

Louisville & Nashville Railroad Company v. Mottley, 211 U.S. 149 (1908), was a United States Supreme Court decision that held that under the existing statutory scheme, federal question jurisdiction could not be predicated on a plaintiff's anticipation that the defendant would raise a federal statute as a defense. Instead, such jurisdiction can only arise from a complaint by the plaintiff that the defendant has directly violated some provision of the Constitution, laws, or treaties of the United States. This reading of the federal question jurisdiction statute is now known as the well-pleaded complaint rule.

The Rules of Decision Act mandates the application of substantive state law in cases heard in U.S. federal courts sitting in diversity, except where state law is preempted by federal law. The U.S. Supreme Court in Swift v. Tyson (1842) originally read this Act of Congress as limited to state statutory law, but later overturned Swift in Erie Railroad Co. v. Tompkins (1938) and instead held that the Rules of Decision Act requires the application of state law including case law originating from state courts.

Burford v. Sun Oil Co., 319 U.S. 315 (1943), was a United States Supreme Court case in which the Court created a new doctrine of abstention.

Guaranty Trust Co. v. York, 326 U.S. 99 (1945), was a United States Supreme Court case that described how federal courts were to follow state law. Justice Frankfurter delivered the majority opinion further refining the doctrine set forth in Erie Railroad Co. v. Tompkins.

Hanna v. Plumer, 380 U.S. 460 (1965), was a decision by the Supreme Court of the United States, in which the Court further refined the Erie doctrine regarding when and by what means federal courts are obliged to apply state law in cases brought under diversity jurisdiction. The question in the instant case was whether Federal Rules of Civil Procedure governing service of process should yield to state rules governing the service of process in diversity cases. The Court ruled that under the facts of this case, federal courts shall apply the federal rule. The decision was drafted by John Hart Ely, who was then a law clerk for Earl Warren.

Black and White Taxicab and Transfer Company v. Brown and Yellow Taxicab and Transfer Company, 276 U.S. 518 (1928), was a United States Supreme Court case in which the Court refused to hold that federal courts sitting in diversity jurisdiction must apply state common law. Ten years later, in Erie Railroad Co. v. Tompkins, the Court reversed course, and overturned Swift v. Tyson.

World-Wide Volkswagen Corp v. Woodson, 444 U.S. 286 (1980), is a United States Supreme Court case involving strict products liability, personal injury and various procedural issues and considerations. The 1980 opinion, written by Justice Byron White, is included in the first-year civil procedure curriculum at nearly every American law school for its focus on personal jurisdiction.

Caterpillar Inc. v. Lewis, 519 U.S. 61 (1996), held that federal jurisdiction predicated on diversity of citizenship can be sustained even if there did not exist complete diversity at the time of removal to federal court, so long as complete diversity exists at the time the district court enters judgment.

Gasperini v. Center for Humanities, 518 U.S. 415 (1996), was a decision by the Supreme Court of the United States in which the Court further refined the Erie doctrine regarding when and how federal courts are to apply state law in cases brought under diversity jurisdiction. The Court held that the New York state rule applied.

<span class="mw-page-title-main">Certified question</span>

In the law of the United States, a certified question is a formal request by one court from another court, usually but not always in another jurisdiction, for an opinion on a question of law.

Southland Corp. v. Keating, 465 U.S. 1 (1984), is a United States Supreme Court decision concerning arbitration. It was originally brought by 7-Eleven franchisees in California state courts, alleging breach of contract by the chain's then parent corporation. Southland pointed to the arbitration clauses in their franchise agreements and said it required disputes to be resolved that way; the franchisees cited state franchising law voiding any clause in an agreement that required franchisees to waive their rights under that law. A 7-2 majority held that the Federal Arbitration Act (FAA) applied to contracts executed under state law.

Dice v. Akron, Canton & Youngstown R. Co., 342 U.S. 359 (1952), was a United States Supreme Court case in which the Court held that federal court rules apply when an action is brought pursuant to a federal right and where the substance of a state's rules would necessarily have an adverse effect on the protection of an individual's rights under federal law.

References

↑ See, generally, United Mine Workers v. Gibbs , 383 U.S. 715 (1966) and Butner v. United States , 440 U.S. 48 (1979).
↑ Guaranty Trust Co. v. York 326 U.S. 99 (1945)
↑ Allan Ides & Christopher May, Civil Procedure, 3d Edition.

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[1] See, generally, United Mine Workers v. Gibbs , 383 U.S. 715 (1966) and Butner v. United States , 440 U.S. 48 (1979).

[2] Guaranty Trust Co. v. York 326 U.S. 99 (1945)

[3] Allan Ides & Christopher May, Civil Procedure, 3d Edition.

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