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Erie Doctrine and Choice of Law – History of the Erie Doctrine

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Common law
Common law is law that is the result of judicial decisions rather than statutes or laws enacted by a legislature.

Erie Doctrine
The Erie doctrine is based on a U.S. Supreme Court case, Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938). The doctrine states that the federal courts, when confronted with the issue of whether to apply federal or state law in a lawsuit, must apply state law on issues of substantive law. When the legal question is based on a procedural issue, the federal courts should apply federal law.

Choice of law
"Choice of law" is a set of rules to used select which jurisdiction’s laws to apply in a lawsuit. Choice of law questions most frequently arise in lawsuits in the federal courts that are based on diversity jurisdiction, where the plaintiff and defendant are from different states. In these lawsuits, the courts are often confronted with the question of which jurisdiction’s laws should apply. The choice of law rules establish a method by which the courts can select the appropriate law.

Conflict of laws
Sometimes used interchangeably with “choice of law”, a conflict of laws arises when a lawsuit introduces conflicting laws of two or more jurisdictions.

Procedural law
Procedural laws are laws that establish the steps and procedures that lawyers and courts must follow during a lawsuit. These laws establish the deadlines that legal papers must be filed with the court, the types of documents required during litigation, the manner in which they are introduced to the parties and the court, and method of obtaining documents and evidence prior to trial. Examples of procedural laws are those found in the Federal Rules of Civil Procedure.

Rules of Decision Act (RDA)
The "RDA" is a law created by Congress in 1789 that states that, in the absence of a federal law, Constitutional provision, or treaty, the courts should apply state law where it applies. It is one of the foundations of the Erie doctrine.

Substantive law
Substantive laws are laws that create and regulate the rights and duties of people and entities. Examples of substantive laws are the federal Clean Water Act and the Civil Rights Act of 1963.

The Erie doctrine is a topic that every first-year law student must experience and grapple with. While the nuances of the rule make it one of the most confusing topics studied in Civil Procedure, its basic principles are relatively straightforward. Along with the choice of law rules in the next subchapter, the Erie doctrine is based on the interaction of differing sets of laws. Before launching into the essence of the Erie doctrine, it is important to understand the background behind the development of the doctrine.

As we have discussed previously, there are two co-existing levels of government: the federal and state governments. Federal laws apply to all states, while state laws apply within each individual state’s geographical borders and its residents.

When a lawsuit is based on a question of federal law, the federal courts implement the applicable federal laws. The situation becomes more complicated when the court's jurisdiction over the lawsuit is based on the diversity of citizenship of the parties engaged in the controversy. As you may recall from an earlier chapter, diversity of citizenship is based on the plaintiff and defendant residing in two different states, with the amount of the legal dispute (also known as the “amount in controversy”) exceeding $75,000. The plaintiff is then permitted to bring the lawsuit in federal court, which has proper jurisdiction over both the parties and the legal claim. In such scenarios, the plaintiff’s claim is often based on issues of state law. As a recap of diversity jurisdiction, look at the following example.

EXAMPLE: Joe, a resident of New York, is hunting for wild turkeys near the state line bordering Massachusetts. David, a Massachusetts resident, is enjoying the sunny fall afternoon on a leisurely hike. Joe takes aim at what he believes to be a turkey moving in some dense brush and shoots. However, instead of Joe shooting a turkey, Joe shoots David, who is admiring a rare flower blooming at the edge of the very same brush, but who is standing in Massachusetts territory. David is struck by the bullet in the leg causing permanent injury and forcing him to take a desk job at the local metal working plant. David sues Joe in federal court in Massachusetts for $100,000 in personal injury damages and loss of future wages. New York has laws that provide for the type of monetary relief that David seeks in his lawsuit, but there are also federal laws that would govern the same action.

In the above example, David has satisfied the requirements of diversity jurisdiction to bring his lawsuit in federal court. However, one major issue is raised by the lawsuit being brought in federal court: which personal injury law should be applied by the federal court in making its ruling on the controversy? David would argue that federal law should apply since he was the victim and was physically in Massachusetts when the bullet struck him, thus making it unreasonable to apply New York law. Joe, on the other hand, may want New York law to apply since he is a New York resident and was in New York when the accident occurred. The New York law may, for example, provide more protection for Joe by limiting the amount of the monetary damages recoverable by David than federal law. In addition, a third option for the court would be to apply Massachusetts state law. Therefore, the federal court is confronted with the quandary of selecting the appropriate law in reaching resolution of the controversy.

This legal question can be resolved by the application of the Erie doctrine. The Erie doctrine assists the federal courts and attorneys in assessing the appropriate law that should be applied in diversity jurisdiction situations. Before launching into an analysis of the Erie doctrine, it is helpful to explore the legal history leading up to the inception of the doctrine.

The Rules of Decision Act (RDA) is a federal statute created by Congress in 1789. The statute was Congress’ recognition of the conflicts that could arise between federal and state law. It states

“The laws of the [ ] states, except where the constitution, treaties or statutes of the United States shall otherwise require or provide, shall be regarded as rules of decision in trials at common law in the courts of the United states, in cases where they apply.”

28 U.S.C. § 1652. In other words, the statute requires that the federal courts are required to apply state law in all cases except where there is an applicable federal law, Constitutional provision or treaty that speaks to the same issue. For example:

  1. Danny, a resident of Louisiana, owns a farm that raises fish on the Gulf Coast. Petroleum, Inc., an oil refinery based in Houston, Texas, operates a facility 50 miles from Danny’s farm. On September 1, 2003, Petroleum, Inc., experienced a power failure, which caused 100 gallons of crude oil to leak from its refinery and pollute the waters of Danny’s farm, killing his stock of fish worth over $1 million. Danny files suit in federal court (under the principal of diversity jurisdiction) in Louisiana for failing to comply with federal pollution control laws that limit the discharge of petroleum to one barrel per year per entity in the Gulf and imposes strict liability for failure to comply with that limit. Louisiana statutory law, however, dictates that a refinery is not responsible for accidental discharge of petroleum in the absence of negligence. This is a classic case where, under the RDA, the federal law would apply. While a state law exists on the subject, there is a federal law that applies to the issue directly at the center of controversy: the limitations of petroleum pollution in the Gulf. Therefore, the federal court would implement the federal law in its ruling and Danny would prevail in the case.
  2. Assume the same facts as above, except that there is no federal statute that governs the circumstances of this case. However, the state statute (limiting the liability for oil spills to negligence cases) does exist on point. Nevertheless, the federal court realizes that, although there is no federal statute on point, federal cases (i.e., federal common law) from around the country have uniformly held that any discharge of petroleum that kills fish will lead to strict liability on the part of the spiller. The court thus questions whether to apply the Louisiana statute or the federal common law. Here, the RDA steps in and dictates that the state law must apply because the state law exists on point and there is no federal statute that contradicts it.

The controversy over the RDA that led to Erie was what happens when there is no federal OR state statutory law on point. In such a case, should the court apply federal common law or should the court apply state common law (since there is no statutory law) to determine the outcome of this case? For example:

Same facts as above (Danny v. Petroleum, Inc.), except that neither Louisiana nor the federal statutes have passed any legislation regarding the key question in the case. The federal court realizes that, although there is no federal statute on point, federal cases (i.e., federal common law) from around the country have uniformly held that any discharge of petroleum that kills fish will lead to strict liability on the part of the spiller. However, Louisiana courts have generally refused to recognize strict liability in such cases. Should the court apply Louisiana common law or federal common law?

To answer this question, the U.S. Supreme Court ruled that, in the absence of state statutory law, a federal court may apply federal common law in resolving a legal controversy based on diversity jurisdiction even though there was state common law that spoke on the issue. See Swift v. Tyson, 41 U.S. 1 (1842). The Supreme Court’s interpretation of the RDA held that the federal court had discretion in determining whether to apply federal or state law in a diversity jurisdiction context.

The Swift decision was changed by the Supreme Court ruling in the case of Erie Railroad v. Tompkins, 304 U.S. 64 (1938), which spawned the Erie doctrine. The Erie case was based on a set of facts similar to the example below:

EXAMPLE: Samantha, a resident of Colorado, was at a railroad crossing in Denver, Colorado. Cross Country Railroad (CCRR), a railroad company incorporated under Wyoming state law with its principal place of business in Jackson Hole, Wyoming, operated the railroad crossing. Unbeknownst to Samantha, CCRR had recently repaired the railroad crossing, but had failed to cover up a ditch. Samantha tripped into the ditch and severely injured herself. Samantha sues CCRR in federal court in Denver, Colorado, to recover damages for her personal injuries under Colorado law. There is a federal common law applying to personal injuries that involve railroad crossings. Which law should the federal court apply, federal law or Colorado common law?

Under the Swift decision, the federal court would have applied the federal common law to the case. However, in the Erie decision, the Court held that the state substantive law should apply, even if that substantive law is in the form of common law, and not statutory law. Therefore, the federal court would apply the Colorado common law to Samantha’s lawsuit in the example above.

The U.S. Supreme Court in Erie took its ruling a step further. The court held that it would make a distinction between substantive and procedural laws, treating them differently. The Court held that federal courts should apply state law to substantive law issues, such as personal injury, employment discrimination, and workers compensation. These laws create the rights and duties of people and entities. The court distinguished substantive law issues from procedural law issues, such as the time deadlines for filing a complaint and the procedures for filing a motion. The courts should still apply federal law when procedural laws were in question. In the earlier example involving Samantha and CCRR, consider the following:

Same facts as above. Samantha sustained her injury on April 1, 2003. She filed her complaint to start the lawsuit in federal court on June 2, 2003. CCRR answered Samantha’s complaint on August 15, 2003. In addition to the state and federal laws regarding Samantha’s personal injury claims, Colorado law requires that a defendant must file its answer within 90 days of the filing of the complaint. Federal law requires that a defendant must file its answer within 30 days of the filing of the complaint. Which law should the federal court apply?

As established in Erie, the federal court should apply the federal law. Since CCRR filed its complaint after the 30-day deadline, the answer was filed too late. Note that if the Colorado law had applied, CCRR’s answer would have been within the time permitted in the statute.

[Note, however, that if there is substantive federal law on a subject, that must be applied over state law, because the Supremacy Clause of the Constitution (United States Constitution: Article VI) dictates that federal statutory law must triumph over state law.]In situations where there is a conflict of laws, such as where the laws of two or more states may apply to a case in federal court, the federal court must apply the laws of the state in which the federal court is situated. For example,

Carl, a resident of Oklahoma, is injured while working on an oilrig outside of Venezuela owned by OilCo, Carl’s employer. Carl sues in federal court in Oklahoma for monetary damages related to the injury. Oklahoma law would hold an employer liable for injuries, while Venezuelan law would prevent an injured employee from recovering any money damages. Which law should the court apply?

The court in the above example should apply the law of Oklahoma, which is the law of the state in which the federal court resides. There is a direct conflict between the relief provided by Oklahoma law (which would allow Carl to recover for his injuries) and the Venezuelan law (which would prevent Carl from any recovery). See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487 (1941). This issue is also discussed in greater depth in the next subchapter on choice of law. Similarly, a federal court must follow the law of the state in which the court is situated when allocating the burden of proof in a lawsuit. The burden of proof is burden the law applies to a party in a controversy to prove the elements of a lawsuit. A plaintiff, for example, has the burden of proving the   elements of a personal injury case, including the fact that the defendant was the direct cause of the accident and the injuries sustained were a result of the defendant’s actions.

As we will see in the next subchapter, the selection of the proper law also extends to lawsuits where a court must decide between the laws of different states. This can mean the dismissal of a case or the limitation on the type of relief that can be recovered by a plaintiff.

It is important to emphasize that the Erie doctrine only applies to cases brought in federal court where there is an issue whether to apply federal or state law. For lawsuits that are brought in state court but involve a choice between two different states’ laws, it is important to apply the choice of law rules discussed in the next subchapter.