American Civil Litigation and Dispute Resolution University of Insubria, Como, Italy Jeffrey W. Stempel William S. Boyd School of Law University of Nevada, Las Vegas

Segment 2 The Erie Doctrine

A Review of American Federalism State law is the “baseline” governing law Although it can often be supplanted by applicable federal law under the “Supremacy Clause” of the Constitution If there is a sufficient link to interstate commerce or something else that conveys federal power In the absence of federal law, state law is the default

Still More on Federalism The concept is captured in the Rules of Decision Act, 28 U.S.C. § 1652 The laws of the states should be the “rule of decision” unless the case is governed by federal law Despite this ethos in America, there was established in the 1800s the practice of applying “federal common law” to disputes between citizens of different states in cases that were in federal court because of diversity jurisdiction

A Little More Federalism This practice of using federal common law was established in Swift v. Tyson (1842) The thought behind it was the application of federal common law in commercial matters would be efficient – but it proved not to make much difference And it led to the divergent results and unequal outcomes alluded to in Erie v. Tompkins

Just a Bit More Federalism The ramifications of Swift v. Tyson were exacerbated because courts also did not treat state judicial precedent as the “laws” of the states for purposes of the Rules of Decision Act. Consequently, state law displaced federal common law in diversity cases only where there was state legislation – even if state court decisions established state law counter to the federal common law In federal question cases, of course, federal law governs – but even here there are some complexities that we must skip over for this short course

Erie Railroad v. Tompkins Tompkins lives in Eastern Pennsylvania One night, after several drinks with his mother-in-law (no kidding), he is walking back home – alongside the railroad track. Not as weird as it seems; the paths along the track were often used as trails as this was often shorter (and probably usually safer) than walking along the road.

Erie v. Tompkins As Tompkins is walking along the tracks, he is struck hard by something protruding from the train (his story) Railroad suspects he may have fallen near the track or been sleeping and the train ran over his arm What was beyond dispute was that Tompkins lost an arm.

Erie v. Tompkins Tompkins gets a lawyer in lower Manhattan (New York City) The lawyer does some research If Tompkins sues in Pennsylvania state court, Pennsylvania state law is applicable (Tompkins a Pa resident; accident in Pa; evidence in Pa; Government interest in Pa) Under Pennsylvania law, Tompkins is a “trespasser” because he was not expressly invited to use the Railroad property And the property owner owes no duty of care to a trespasser. Even if the Railroad maintained a dangerous path or tracks or train – no liability – as a matter of law (jury would not even hear the case).

Erie v. Tompkins Seeing the limits of Pennsylvania law, Tompkins counsel goes forum shopping Sues in federal court in New York Diversity of citizenship: Tompkins in Pennsylvania; Erie corporate offices in New York Once in federal court, Tompkins gets the benefit of Swift v. Tyson and federal common law, which makes him a permissive user of the path rather than a trespasser.

Erie v. Tompkins Federal Common Law Under federal common law, Tompkins is not a trespasser but a licensee who has informally been granted the right to use the pathway by the railroad tracks because of longstanding custom and practice Tomkins was not an express invitee, in which case the Railroad would owe him a high standard of care But as a licensee, Tompkins was owed a duty of reasonable care by the Railroad

Erie v. Tompkins Because the federal court in New York applies federal common law rather than Pennsylvania state law, the Railroad cannot win as a matter of law A jury trial is required to assess the respective reasonableness of the conduct of the Railroad and Tompkins Jury finds Railroad negligent, awards Tompkins $30,000 (substantial verdict at that time)

Erie v. Tompkins Railroad challenges the verdict by attacking the Swift v. Tyson line of cases and the rule of federal common law in diversity cases Case reaches the U.S. Supreme Court Famed Justice Louis Brandeis authors the opinion. – First Jewish Supreme Court Justice – Highest Grades in History of Harvard Law – A prominent Boston lawyer for the wealthy – But a progressive reformer (the “Brandeis Brief” supporting better working conditions for women is famous for use of social science research but now seems a bit sexist in supporting limited work hours to “protect” women)

Erie v. Tompkins If in state court, Pennsylvania law applies and Tompkins is a trespasser who cannot recover But if in federal court, Tompkins the licensee is owed duty of due care and case goes to jury But this sort of different treatment for the same issue in federal and state court bothers Brandeis and the court

Erie v. Tompkins Example of the mischief of using federal common law of torts, contracts, etc. in federal cases (which are in federal court only because of the citizenship of the parties, not because of any important federal policy) The Black & White/Brown & Yellow Cab company scam – One company reincorporates in another state to create federal “diversity” subject matter jurisdiction – So that it can avoid a Kentucky law forbidding exclusive dealing contracts

Erie v. Tompkins Court has become dissatisfied with policy of federal common law in diversity cases Court must address the precedent of Swift v. Tyson – now 100 years old – and give a reason for overruling it The bad policy impact (different outcomes of the same case depending on whether in federal or state court) would be enough for many common law judges – but not all Some judges would say precedent that old should only be changed by the legislature

Erie v. Tompkins Court has additional reasons to overrule Swift v. Tyson Swift was interpreting the Rules of Decision Act (28 U.S.C. § 1652) Act speaks of “laws” of the states controlling Swift saw only statutes as “laws” and not state supreme court decisions – now seems incorrect for a common law country Also seems incorrect because of Legal Realism movement (a court decision is just as binding as a law on the books – maybe more)

Erie v. Tompkins So – Erie Court attacks Swift on construction of the word “laws” in the statute Also looks at “new” historical evidence (Harvard Professor Charles Warren’s article on the Judiciary Act of 1789) Warren concluded that intent of the Act (which included the Rules of Decision Statute) was to treat state supreme court decisions as “laws” So Erie Court concludes Swift was wrong on history as well as interpretation

Erie v. Tompkins Erie Court majority now has grounds to overrule Swift and change the law Incorrect construction of statutory word Incorrect view of legislative intent and purpose Bad social policy outcomes resulting from Swift

Erie v. Tompkins What replaces Swift? The Erie Doctrine Where a case is in federal court because of diversity of citizenship (rather than because of questions of federal substantive law), state law governs But because the case is in federal court, Federal Rules of Civil Procedure control the processing of the case

Erie v. Tompkins Brandeis opinion treats the Court’s decision as constitutionally mandated Application of different rules of substantive law to the same case violates the “Equal Protection” Clause of the Constitution (found in Amendment XIV) and denies Due Process (right found in Amendments V and XIV) to litigants

Erie v. Tompkins But concurring Justices not so sure that the inequality occasioned by Swift v. Tyson was unconstitutional But this difference between majority and concurrence only matters if Congress were to attempt to change the Erie Doctrine If Erie is constitutionally based (and most in U.S. think it is), Congress does not have power to change the Erie Rule and go back to Swift v. Tyson

Erie v. Tompkins Continues to Be Good Law in the U.S. But in further application it can become complicated, with more disagreement about the correct application First, some fine-tuning of Erie There still may be times when federal courts will use federal common law – When construing aspects of federal law not set forth in statute – When dealing with federal officials – When dealing with federal property, lands, inter- government disputes (e.g., City of Milwaukee [Wisconsin]) v. State of Illinois case over pollution problem)

More Erie Issues Choice of Law – Even if state law applies, there may be conflict over which state law to apply – e.g., Pennsylvania v. New York for Erie case itself if the case was in state court; – easy answer is Pennsylvania – But question can be harder in other cases Under Erie, federal court facing choice-of-law dispute uses the choice-of-law rules of the state in which the federal court is located – This should make the choice-of-law decision come out the same way in both state court and federal court

Erie Continues to Vex on Occasion Guaranty Trust v. York (1945) holds that where application of a state law would be “outcome determinative” it is substantive (rather than procedural) for purposes of Erie and must be applied in federal court But Hanna v. Plumer (1965) reminds us that Fed. Rules of Civil Procedure govern as long as the rule really regulates procedure and is not a substantive law dressed as procedure

The Latest on Erie in the U.S Gasperini v. Center for Humanities (1996) decides (in a 5-4 Supreme Court vote) that a New York rule (contained in the state’s procedure code) governing excessive verdicts is sufficiently substantive that it applies because Fed. R. Civ. P. 59 is not in conflict Shady Grove Orthopedic v. Allstate Insurance (2010), however (in another 5-4 vote) refuses to apply New York’s class action rule more restrictive than Fed. R. Civ. P. 23.

Erie Made Easy? Although the Erie Doctrine can get horribly messy and contentious at the edges, the premise is relatively simple and reflects the prevailing U.S. view most see as different than the European view Strong preference or presumption for applying state substantive law absent other factors such as “purely” or primarily procedural matter or clearly applicable federal substantive law – Example of the latter: Byrd v. Blue Ridge Electric (1958) finds Const. Amendment VII to prevent application of a South Carolina law (at issue in a diversity jurisdiction case) mandating bench trials (trials by judge rather than jury)

Erie in Brief Apply state substantive law to proceedings in federal court where only basis for subject matter jurisdiction is diversity of plaintiff and defendant But apply federal procedural law to any case in federal court – so long as the Federal Rule of Civil Procedure at issue really regulates procedure (rather than being a subterfuge for regulating substance) and was properly promulgated.