Guaranty Trust Co. of New York v. York

Brief Fact Summary.

York, as owner of certain notes, brought a class action lawsuit in federal court in New York against Guaranty Trust Co., based on Guaranty’s alleged failure, as trustee, to protect the noteholders’ interests. Guaranty Trust asserted that York’s action was barred by the New York’s state statute of limitations. The Court of Appeals held that the state statute of limitations did not apply.

Synopsis of Rule of Law.

The federal court in this diversity case should apply the state statute of limitations.

Facts.

York owned certain notes issued by a third party. She brought a class action lawsuit against Guaranty Trust Co. for breach of trust because of its alleged failure to protect the noteholders’ interests. The class action was brought in federal court in New York; jurisdiction was based on diversity. Guaranty Trust asserted that York’s action was barred by the New York’s state statute of limitations. The Court of Appeals held that the federal court did not have to apply the state statute of limitations, and could instead determine the matter using the doctrine of laches.

Issue.

Did the state statute of limitations apply in this action, brought in federal court on the basis of diversity of citizenship?

Held.

Yes. The state statute of limitations applied in this diversity case.

Discussion.

In diversity cases, the source of substantive rights enforced by the federal courts is the law of the states; state law declared by a state’s highest court or its legislature governs in litigation based on that law, whether the remedies sought are legal or equitable. A system of two sets of conflicting laws within a state is “hostile to the reign of law.”