York (Plaintiff) sued Guaranty Trust Co. (Defendant) for alleged breach of trust after the statute of limitations had passed, bringing the lawsuit in federal court through diversity jurisdiction.
A federal court ruling over a case under diversity jurisdiction must use applicable state law if the outcome of the federal court’s application of law would be different from the outcome under state law.
Trust Co. (Defendant), as a trustee, cooperated in a plan for the purchase of notes at half face value. York (Plaintiff) sued Defendant for alleged breach of trust because Defendant failed to protect the interests of or properly inform the noteholders, as required of a trustee. Plaintiff brought the lawsuit in a federal court of equity through diversity jurisdiction after the state statute of limitations had passed.
In a case of diversity jurisdiction, can a federal court of equity take cognizance of the lawsuit when the applicable state’s statute of limitations would otherwise block the case?
No, as governed by the Erie Doctrine, state law applies and the case is blocked by the statute of limitations. Reversed and remanded.
Rutledge dissents to labeling the statute of limitations as part of a state substantive right, enforceable under the Erie Doctrine.
Under the Erie Doctrine, federal courts must enforce state substantive rights but do not have to follow state remedial schemes. To enforce this rule, the Court distinguishes between substantive law as law affecting the results of the litigation and procedural law as law governing the manner and means of relief. Here, the enforcement of the statute of limitations would affect the results of the litigation.