I.        Swift v Tyson (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. Overturned by Erie.

   II.        Erie Railroad v. Tompkins (1938)

A.    Plaintiff walking alongside RR tracks when his right arm was severed by an object protruding from defendant's train; this happened in PA. Plaintiff filed a lawsuit in NY Fed. Court, b/c more favorable for plaintiff. The issue was what level of duty is owed to a trespasser.  If PA law applied then only "wanton negligence" created liability, & no recovery.  If "federal common law" applied the plaintiff could recover if the railroad was guilty of "ordinary" negligence. 

B.    Erie held that federal courts in diversity actions apply the substantive law of the state in which they sit. 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.)

 III.        If there is a federal law (statute, Federal Rule of Civ Pro, etc.) on point, then federal law will apply, provided that it is valid.

A.    Ex. Federal Rule 4 permits substituted service of process. Suppose that state law (of the state in which the federal court sits) does not permit substituted service. The court will apply the Federal Rule, because it is on point and is valid. A Federal Rule of Civil Procedure is valid if it is “arguably procedural.”

                                          i.    Hanna v. Plumer (1965) – Hanna, from Ohio, sued the estate of Osgood, from Massachusetts, over a car accident in South Carolina. Hanna served process by leaving documents with the wife of the executor, which complied with the FRCP, but not Massachusetts law. The issue was whether a civil action brought in federal court based on diversity jurisdiction, shall service of process be based on the FRCP or on state law. 

1.    Erie had established that substantive issues (when it’s the elements of a claim or defense at issue) would use the state law.

2.    In Hanna, the law was procedural, not substantive (service of process).

3.    Supremacy Clause - if federal law is on point, then it trumps state law, as long as it is valid.  FRCP is very likely to be valid..

a.    Rules Enabling Act establishes that FRCP good

                                                                                          i.    Rules Enabling Act prevents litigants from challenging the validity of constitutional Federal Rules via the Erie Doctrine, but the rules shall not infringe on substantive right

4.    So, ok to use federal law on the service of process issue in Hanna.

 IV.        If there is no Federal Directive on point, a federal judge can still choose to ignore state law, but it depends if the issue is substantive or procedural

A.    Substantive – then must follow state law (Erie Problem)

B.    Procedural – here is where it becomes a problem. Courts had never really defined this, but has given three ways to approach the problem

                                          i.    Outcome-Determinative Test - holds that an issue is substantive if it substantially affects the outcome of the case

1.    Guaranty Trust Co. v. York (1945) – In Guaranty Trust the issue was whether a federal court in a diversity case must apply the state statute of limitations (procedural), which would have barred the suit in state court. Court used the "outcome determinative test."  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. 

a.    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.   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.

                                         ii.    Balance of Interests Test – the court weighs whether the state or federal judicial system has the greater interest in having its rule applied.

1.    Byrd v. Blue Ridge Electric Cooperative, Inc. (1958) – Byrd brought a tort claim against Blue Ridge. Byrd working as independent contractor, but Blue Ridge says for purposes of the worker’s compensation act he was an employee, b/c he was doing same work as an employee. Issue is who determines if plaintiff falls under workman’s comp? In SC it would the judge.  Under federal law, it was a matter for the jury. This is a procedural issue.

a.    Under the outcome-determinative test, the court would have to use state law.  However, court found that the possibility of a different outcome was less important than the right to a jury trial (7^th amendment).  Therefore, court doesn’t want to use the outcome-determinative test, and establishes the balance of interests test instead. The federal interest outweighs any state interest, so plaintiff should get a jury trial.

b.    But problem with Byrd - never really been told how to apply it.

                                        iii.    Forum Shopping Deterrence test – the federal judge should follow state law on the issue if failing to do so would cause litigants to flock to federal court.

1.    Hanna v. Plumer (1965) –

a.    Under the outcome-determinative test the defendant would win

                                                                                          i.    Court here says that the outcome-determinative test from Guaranty is not absolute because there were more basic principles of Erie.

1.    The Twin aims of Erie were to avoid Forum shopping and the unfair differences in administration of justice between state and federal courts.

                                                                                         ii.    Court says that while the outcome of the current case is determined by which law is applied, the rights in question are not substantial enough to create problems of unequal protection.

1.    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. 

2.    In the current case the federal and state laws are in direct conflict. The court has been instructed to follow the Federal Rule in these cases and there is no constitutional reason not to do so.

                                                                                        iii.    In short, outcome determinative judgments are important for deciding if a state or federal rule applies but in the current case denying the federal rule would remove any power whatsoever the federal courts have over their procedures.

   V.        Interpreting State Law – when fed court bound to apply state substantive law

A.    If state court has not decided the issue, or if the decisions on point are old and not current with decisions of other jurisdictions, then fed court may consider the law of other jurisdictions in reaching its decision. The focus of the federal court is to determine what decision the highest court of the state would reach if confronted with the issue.